Time of Day Rates for Residential and Larger Commercial and Industrial Customers

by Jan Paul Acton


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Time-of-day (TOD) electricity rates more accurately reflect the costs of supply than non-TOD rates. As such, they promote the ratemaking objectives of efficiency and fairness — in the sense that customers face bills that reflect the costs they impose. Since TOD rates generally require incremental metering costs, we need evidence of price responsiveness by customers to pass an efficiency standard of evaluation (it may still be judged desirable on fairness grounds without price responsiveness). The paper reviews evidence of TOD response by residential, commercial, and industrial customers and applies a benefit-cost criterion based on consumer and producer surplus to TOD rates proposed for Tennessee Valley Authority (TVA) retail customers.

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