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Equity in Residential Electricity Pricing

Real-time pricing of electricity is theoretically more economically efficient than flat rate pricing. However, a switch from flat-rates to real-time rates means that many consumers will lose the cross-subsidy they are receiving under the flat rate, and may see an increase in their bills even if they have elastic demand. We use hourly load data from 1260 Commonwealth Edison residential customers on a standard flat rate electricity tariff from 2007 and 2008. We calculate which customers would have been better off and which customers would not under real time pricing with both elastic and inelastic demand and look at the general characteristics of these customers. We find that if customers do not respond to prices under RTP, then only 35% of customers save money, while the remainder loses. The greatest potential for savings is from reduction in capacity costs. Keywords: Residential electricity pricing, Dynamic pricing, Real-time pricing

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JEL Codes: Q41: Energy: Demand and Supply; Prices, Q40: Energy: General, D12: Consumer Economics: Empirical Analysis, L11: Production, Pricing, and Market Structure; Size Distribution of Firms, C60: Mathematical Methods; Programming Models; Mathematical and Simulation Modeling: General

DOI: 10.5547/01956574.35.2.1

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Published in Volume 35, Number 2 of the bi-monthly journal of the IAEE's Energy Economics Education Foundation.


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