Electricity pricing is complex and confusing the way it is done today. Investor-owned utilities (IOUs) typically have many ways of charging customers. Pacific Gas and Electric in California has over seventy electric service tariffs in their tariff book.

A “full-requirements tariff” with increasing block prices for monthly energy, combined with time-of-use (TOU) and fixed-monthly charges, is very difficult for a customer to understand. A time-of-use tariff, combined with a demand charge and a fixed charge, is difficult for a customer to work with. In some situations, usage in a 15-minute interval may increase a customer’s bill for the entire month or year. Dynamic pricing information, event-based demand response, and net metering are often layered on top of other tariffs.

Pricing will not get any simpler if we follow the current business model. It will get more complex as regulators try to jigger distributed generation, storage, and customer owned solar into the current clumsy system.

“The Transactive Energy (TE)  business model eliminates the need for these complex tariffs. They are replaced by a single enabling tariff agreement that applies to all transactions between any two parties, such as the utility and its customer or between the two parties.

The Transactive Energy rules are simple and straightforward:

1) There are two products: energy and transport.

2) Forward transactions are used to coordinate investment decisions and to manage risk.

3) Spot transactions are used to coordinate operating decisions.

4) All parties act autonomously.

The simple enabling TE tariff agreement does not specify prices or amount of energy to be bought or sold. It is simply a commercial agreement that says for each transaction they may execute under the agreement the seller will deliver the transacted product at the agreed location and time period. The buyer agrees to take delivery and to pay the seller the agreed cost of the transaction. The enabling agreement/tariff has payment and credit and default provisions.

Blog Graphics.001Everyone plays by the same clear rules with TE. If you want energy then you accept the tender of a seller or you make tenders for your needs that may be accepted by a seller. If you are producing energy then you offer tenders to sell. You set the price and quantity or you accept a tender of a buyer. If things do not work out the way you expected, then you make adjustments according to the same simple rules. There are intermediaries affiliated with the TE Platforms to help you.

Most of the minute-to-minute decisions will be made by automated agents acting on your behalf. The agents will be embedded in your home, your appliances, your car, and your office building. No need to wade through tariff books and say yes to something you don’t understand. You tell your energy management system (EMS) what you want and go about your life confident that your agent is doing smart things on your behalf. It is “set and forget.”

The TE model is somewhat like buying baseball tickets using StubHub. You tell StubHub what you want and what you are willing to pay and it uses a sophisticated algorithm to sort through all the options to come up with the best deals for you. It happens at the speed of light.

Data on Tenders and Transactions

Blog Graphics.001The TE Platform database will hold information on all transactions in the system. Regulators will be able to use this data to ensure that rules are being followed and there are no economic abuses. With strict protection of private information, economists can access the data to study the efficiency and stability of the system. The database will be a tremendous resource for researchers.

Everyone will use a common protocol so anybody can transact with anybody else at prices and in amounts both parties know ahead of time and agree to. (For more about TE protocols see Chapter 3 of our book, Transactive Energy: A Sustainable Business and Regulatory Model for Electricity.)



Transparency is fundamental to how decisions are made. It is a key ingredient of trust. Customers and producers may not want to get involved directly, but they do want to be confident that decisions are open and that rules and process are being followed.

The TE model offers the possibility of a highly transparent system at three levels. The first level of transparency is its simplicity. The TE model is simpler and far more adaptable than our current tariff systems. The second level of transparency is the availability of data on all transactions by producer and consumer. A third level of transparency will be the use of a common protocol for payments among the parties.”

For more about the TE business model see the book, Transactive Energy: A Sustainable Business and Regulatory Model for Electricity.


The book is available for the iPad or Mac on iTunes.


It is available for the Kindle and PC on Amazon.

To follow industry developments in TE visit the Transactive Energy Association group on LinkedIn.

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