Evaluating Time-of-Day Electricity Rates for Residential Customers

by Jan Paul Acton, Bridger M. Mitchell

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If it cost nothing to meter and bill customers for electricity use during peak and off-peak hours, time-of-day (TOD) pricing would improve the efficient use of resources and result in more equitable billing. Since new meters require added expense, the benefits — measured by changes in consumers' and producers' surplus — must be assessed. Based on data from the Los Angeles Electricity Rate Study, a 30-month experiment with 1800 households using either TOD, seasonal, or time-invariant electricity rates, this study found that the price elasticity of demand increased steadily with the total monthly use of electricity and that price responsiveness was much greater in households with certain appliances, e.g., those with swimming pools. TOD pricing could not be justified for the entire residential class on efficiency grounds, but a subset of customers displayed enough price responsiveness to offset the added metering costs.

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