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This paper proposes a pricing mechanism, optional real‐time pricing (RTP), with day‐ahead hourly prices, that exploits the potential offered by a competitive wholesale power market. When an electric utility offers the option to its industrial customers, the retail prices are based on an existing Hopkinson tariff and expectations as to the wholesale market's next‐day hourly spot prices. The proposed RTP mechanism is Pareto‐superior to the tariff in that it assures both the utility and the customer of profits that will be at least as great as under the tariff.
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Woo et al. (1996) studied this question.
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