Thomas Bourgeois and William Pentland

Realizing Real Time Pricing Promise: What CHP Offers MHP

Real-time pricing (RTP) programs provide economic incentives for customers to reduce energy consumption during peak hours. Several states have created RTP rate structures voluntary and mandatory – on various categories of customers, usually industrial, larger commercial and institutional customers. In 2006, New York State imposed mandatory hourly pricing (MHP) for all distribution utilities on a select group of customers initially ranging in size from 1,000 kW maximum peak demand to 1,500 kW maximum peak demand, depending upon the utility. The maximum peak demand level triggering mandatory hourly pricing was scheduled to drop over time, so that by Spring 2011 all customers with maximum peak demand levels in the range of 300 kW to 500 kW will be subject to MHP. At these demand levels, MHP will be affecting a much broader group of customers statewide. Evidence suggests that customers are not changing behavior in reaction to price, but are migrating to providers who offer a flat pricing structure (though in NY the provider still faces the MHP rate). Con Edison's 2009 MHP Evaluation Report cites that affected customers were actually using more on-peak energy in 2008 under the MHP program than they were in 2006, prior to the MHP program. This paper summarizes the status of MHP in New York. Based on empirical modeling of the potential value created by sites strategically employing combined heat and power (CHP) under an MHP regime, argues that CHP can significantly improve the performance of MHP in New York and deliver savings to customers. Results were particularly favorable for commercial customers employing CHP in Manhattan where the spread of prices was greater than it was in upstate New York.

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