Fair Dynamic Pricing for Advanced Metering Infrastructure

Abstract

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 stud-
ies 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 pric-
ing. 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 guar-
antee 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.