NCPA - National Center for Policy Analysis

"Real-Time" Power Pricing

February 8, 2001

Economists have long recognized the benefits of what is called real-time pricing of energy supplies. Armed with data on the price fluctuations of electricity, consumers can tailor some of their energy purchases to coincide with cost dips. The benefits are lower bills and greater conservation.

The practice is now beginning to catch on, thanks to California's energy debacle.

  • Atlanta-based Georgia Power lets large energy consumers track prices and cut use based on price.
  • By using the Internet to inform 1,650 of its biggest business customers of price fluctuations, Georgia Power can save as much as 800 megawatts at a time -- enough to power almost 225,000 homes.
  • About 5,300 industrial plants, skyscrapers and big institutions in California -- representing 8,000 megawatts of peak electricity use -- are already equipped with meters that might trigger cuts in demand, but they do not yet have the billing software or ability to get hour-by-hour power prices via the Internet.
  • In several other states, pilot studies on real-time pricing have affirmed its benefits.

One of California's problems is that its Public Utilities Commission -- which must approve a demonstration program involving installation of energy-price monitoring equipment -- has been dragging its feet. The commission has been bogged down in politics and consumer challenges. Also, its regulators don't want to relinquish control to electricity users, critics complain.

But if the system and equipment were installed, California businesses could temporarily shrink demand by 20 percent -- or 3,000 megawatts. That compares to a predicted power shortfall next summer of 1,000 to 2,000 megawatts.

Source: Byron Acohido, "When Energy Prices Go Up, Some Businesses Turn Off," USA Today, February 8, 2001.

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