Response to Time-of-Day Electricity Rates by Large Business Customers

This report attempts to reconcile the conflicting evidence regarding the effect of time-of-day (TOD) rates on business customers' electricity usage. The authors describe the apparent conflict among different studies of customer response; summarize five of the most important of the structured econometric studies of U.S. customer response; present new findings based on RAND data covering ten U.S. utilities and approximately 4,000 customers on TOD rates; and report new load-shape analysis of U.S. data. The findings suggest that TOD rates do lead to statistically significant changes in electricity use among U.S. commercial and industrial firms, but the degree of change is much more modest than some early studies suggest. The primary reason for overestimation of response is that some studies used samples of firms that are unrepresentative of the business class as a whole. In addition, some analytic methods are unsuited to estimation when the true response is very small.