Commercial/Industrial Customer Response to Time-of-Use Electricity Prices: Some Experimental Results

Abstract

This article analyzes a time-of-use pricing experiment involving over 700 small and medium size commercial/industrial firms. Two basic rate structures were implemented: one with time-varying demand (kW) charges and a flat energy (kWh) charge, and the other with time-varying energy charges and a flat kW charge. A small but statistically significant elasticity of substitution between peak and offpeak (kWh) consumption is estimated for the Summer season in the overall sample for firms facing the time-of-use demand rate. A substantially larger response is estimated in the Summer season for the subgroup of large firms in the experiment that faced a time-of-use demand rate, and this response translates into a welfare gain that in just the first year more than offsets the additional metering costs involved under mandatory implementation.