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The Impact of Dynamic Pricing on Residential and Small Commercial and Industrial Usage: New Experimental Evidence from Connecticut

Ahmad Faruqui, Sanem Sergici, and Lamine Akaba

Year: 2014
Volume: Volume 35
Number: Number 1
DOI: 10.5547/01956574.35.1.8
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Abstract:
Among U.S. households, a quarter have smart meters but only one percent are on any form of dynamic pricing. Commissions and utilities continue to study the potential benefits of dynamic pricing through experimentation but most of it involves the residential sector. We add to that body of knowledge by presenting the results of a pilot in Connecticut which included small commercial and industrial (C&I) customers in addition to residential customers. The pilot featured a time-of-use rate, two dynamic pricing rates and four enabling technologies. Customers were randomly selected and allocated to these rates, to ensure representativeness of the final results. The experiment included a total of around 2,200 customers and ran during the summer of 2009. Using a constant elasticity of substitution model, we find that customers do respond to dynamic pricing, a finding that matches that from most other experiments. We also find that response to critical-peak pricing rates is higher than response to peak-time rebates, unlike some other experiments where similar results were found. Like many other pilots, we find that there is virtually no response to TOU rates with an eight hour peak period. And like the few pilots that have compared small C&I customer response to residential response, we find that small C&I customers are less price responsive than residential customers. We also find that some enabling technologies boost price responsiveness but that the Energy Orb does not.



Optimization of Time-Varying Electricity Rates

Jacob Mays and Diego Klabjan

Year: 2017
Volume: Volume 38
Number: Number 5
DOI: https://doi.org/10.5547/01956574.38.5.jmay
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Abstract:
Current consensus holds that 1) passing through wholesale electricity clearing prices to end-use consumers will produce maximal efficiency gains and 2) simpler forms of time-varying retail rates will capture only a small portion of potential benefits. We show that neither holds in the presence of capacity costs typical in U.S. wholesale markets. Using an optimization model describing the short-term problem faced by an electricity retailer, we find hourly prices that optimally pass through capacity costs. We estimate benefits for a retailer using these prices as well as optimal configurations of a number of time-varying rate structures. Testing a range of realistic assumptions, we find that in the absence of a well-designed demand charge, passing through clearing prices may miss up to three quarters of the benefits possible from optimal hourly prices. By contrast, a simpler critical peak pricing structure enables retailers to achieve approximately two-thirds of the total possible benefits.





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