Fair Dynamic Pricing for Advanced Metering Infrastructure
Advanced Metering Infrastructure (AMI), a subset of smart grid technologies, improves information exchange between electric utility operators and consumers. AMI allows for real-time dynamic pricing where the utility operator can charge variable prices depending on load demand and the varying cost of delivering electricity. While many studies have shown that dynamic pricing improves system efficiency and reduces costs for most consumers, there is much less discussion of the relative fairness of various dynamic pricing structures some of which have the potential to be regressive compared to traditional flat-rate pricing. This is considered unfair by ratepayer advocates and fairness issues often arise in discussions of dynamic pricing at state level public utility commissions. While a tradeoff between efficiency and equity exists, this author argues that only minor compromises are necessary if the right dynamic pricing options are used. Forms of dynamic pricing that guarantee no increased costs for any individual consumer are less likely to be labeled as unfair. If utilities offer default dynamic pricing structures that are universally perceived as fair, AMI will face one less hurdle to widespread acceptance.
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