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Demand for Electricity of Small Nonresidential Customers under Time-Of-Use (TOU) Pricing

After the oil crisis of 1973, the California Public Utilities Commission (CPUC) in 1976 ordered Pacific Gas and Electric Company (PGandE) to charge its large nonresidential customers with monthly billing demand of over 4000 kilowatts (kW) mandatory time-of-use rates. Using a translog (TLOG) specification attributable to Christensen, Jorgenson, and Lau (1973), Chung and Aigner (1981) estimate the electricity demand price elasticities by time-of-use for 64 of these customers in 13 Standard Industrial Classification (SIC) code groups. Own-price elasticity estimates are generally around -0.1 and at times can be as high as -0.5, or they have the wrong sign. Cross-price elasticity estimates indicate that electricity usages by time-of-use are mostly substitutes. However, the estimated price responsiveness typically is larger than observed usages (see below and the section, Experimental Design and Data). Moreover, positive own-price elasticity estimates, though not statistically significant, raise further doubts about the validity of empirical results.

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Energy Specializations: Energy Modeling – Energy Data, Modeling, and Policy Analysis; Electricity – Markets and Prices

JEL Codes: Q54: Climate; Natural Disasters and Their Management; Global Warming, Q40: Energy: General, Q41: Energy: Demand and Supply; Prices, C51: Model Construction and Estimation, D24: Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity, C58: Financial Econometrics

Keywords: Electricity demand, TOU pricing, Small nonresidential customers, California

DOI: 10.5547/ISSN0195-6574-EJ-Vol6-No4-9

Published in Volume 6, Number 4 of the bi-monthly journal of the IAEE's Energy Economics Education Foundation.


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