Retail pricing of reactive power service

Competition will ultimately force explicit retail pricing of reactive power services. Until the present, customers have generally paid for these services through not only reactive power charges but also through {open_quotes}energy{close_quotes} and {open_quotes}demand{close_quotes} charges for real power consumption. In the future, however, integrated utilities will lose some real power sales to competitors, meaning that the recovery of reactive power costs must be separated from the pricing of real power services. This paper reviews existing retail tariffs and suggests new directions for retail pricing of reactive power. It is divided into three sections. The first section summarizes the physical and economic principles that should provide a foundation for reactive power pricing. In particular, it explains that the costs of reactive power depend upon both the static and dynamic aspects of retail loads, implying that the prices of reactive power should reflect these costs. The second section categorizes the reactive power tariffs of eighty-one U.S. utilities into three types: tariffs that directly depend upon reactive power use, tariffs that modify real power billing parameters, and others. It then quantifies the wildly different prices that identical customers would pay in different service territories due to tariff disparities. The third section suggests new directionsmore » for the future evolution of reactive power pricing.« less