AS U.S. ELECTRICITY MARKETS BECOME increasingly competitive, large industrial customers will discover many new choices. These choices include the opportunity to modify the amount and timing of electricity use in response to prices that vary from hour to hour. In addition, customers can sell certain electricity services, including operating reserves and load following, to the system operator. And industrial customers with cogeneration facilities can participate fully in bulk power markets, buying and selling energy and ancillary services in response to changes in spot prices.
The choices will mean real dollars. Using detailed data on one industrial plant's electricity use, cogeneration output and purchases from its local utility, we quantified the benefits of the options listed above. We have concluded that real-time electricity prices will greatly expand the options that industrial customers have for managing their electricity bills.
Of course, large industrial customers have always had some choice in managing electricity costs. Such customers can purchase, under current cost-of-service tariffs, either firm or nonfirm power. If they buy nonfirm power, their rate is lower, typically with a much lower capacity charge. In return for this lower rate, the utility has the right to interrupt the flow of power to the customer. In addition, many utilities offer their large customers time-of-day prices. These prices change on a fixed schedule from hour to hour, but do not depend on current system conditions and costs.