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

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.

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Keywords: Dynamic Pricing, Impact Evaluation, Time-of-Use Rates, Critical-Peak Pricing, Peak Time Rebates, Enabling Technologies, Residential Customers, Small Commercial and Industrial (C&I) Customers, Elasticity of Substitution

DOI: 10.5547/01956574.35.1.8

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Published in Volume 35, Number 1 of The Quarterly Journal of the IAEE's Energy Economics Education Foundation.