At the annual winter meeting of the National Association of Regulatory Utility Commissioners (NARUC) held yesterday, a whitepaper on the benefits of dynamic pricing in the electric industry was distributed by The Edison Electric Institute, the paper's sponsor. The paper, written by The Brattle Group, helps utilities faced with problems posed by aging infrastructure by laying out a methodology for quantifying the costs and benefits of implementing dynamic pricing and advanced metering infrastructure.
Ahmad Faruqui, a principal of The Brattle Group and the lead author of the study entitled "Quantifying the Benefits of Dynamic Pricing in the Mass Market," said the paper shows that properly designed dynamic pricing rates can yield substantial benefits to utilities and customers. Reviewing the large body of experimental evidence with dynamic pricing, Faruqui explained that depending on the specific rate design and enabling technology that is offered to customers, utilities can expect customers to reduce their demand during critical peak periods between 8% and 50%, with 20% percent being a reasonable median number.
Faruqui noted, "Customers that shift 20% of their load from critical peak periods lasting less than a hundred hours to off-peak periods can save approximately 6% on their monthly bills during the summer months. Over the long haul, additional benefits accrue from avoiding the construction of peaking generation plants." Faruqui cautioned that "benefits vary by utility and region, and care has to be exercised in not improperly extrapolating results across the country."