Optimal Spot Pricing: Practice and Theory

A new concept of electricity pricing referred to as "spot pricing" is presented. Spot pricing is shown to encompass and achieve more fully the objectives of load management techniques and other rate structures proposed so far. The contribution of this paper is the derivation of optimal spot prices and a discussion of and proposals on a number of implementation issues which arise when the theory of spot pricing is turned into practice. A set of rates related to optimal spot prices are proposed and their applicability is discussed in view of different customer characteristics, metering, and communication costs. The impact of spot pricing on line losses and reactive energy, the quality of supply and rationing is elaborated. Issues related to customer response, utility revenues, investments and generation deregulation are also discussed.