The electric industry hasn't seen so much upheaval since Thomas Edison threw the switch at the Pearl Street Station. Full retail access to competitive markets in generation and supply will challenge traditional ways of doing business. But no change will prove more dramatic for electric utilities than setting a competitive price (em that most fundamental of business decisions.
In anticipation of competition, utilities have been experimenting to discern what forms of the "product" (em electric power (em customers might want, and at what prices. One such experiment is real-time pricing.
Real-time pricing (RTP) is important; it can help convey the true cost of power in an industry whose costs vary hour by hour. Historically, wholesale electric markets in the U.S. have not operated on the basis of market-clearing prices, i.e., prices equal to marginal costs. Retail markets have set prices at average costs, calculated without time differentiation. For their inter-company transactions, utilities have used some form of split-savings approach, but these transactions serve as a crude proxy for competition. Recently, bilateral contracts between utilities have been set in reference to marginal costs with increasingly shorter time horizons. These contracts better reflect the marginal costs of sellers in bulk power markets.