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Industrial and Commercial Demand for Electricity by Time-of-Day: A California Case Study

Chinbang Chung, Dennis J. Aigner

Year: 1981
Volume: Volume 2
Number: Number 3
DOI: 10.5547/ISSN0195-6574-EJ-Vol2-No3-7
View Abstract

Abstract:
Recently there has been much interest in time-of-use (TOU) pricing structures for electric utilities. TOU pricing reflects more closely than conventional pricing the cost components of supplying electricity, which vary over the course of a single day as well as over days of the week and seasons of the year. Although such pricing structures have long been used in Europe, they did not receive much attention in the United States prior to 1974.



Conditional Demand Analysis for Estimating Residential End-Use Load Profiles

Dennis J. Aigner, Cynts Sorooshian, and Pamela Kerwin

Year: 1984
Volume: Volume 5
Number: Number 3
DOI: 10.5547/ISSN0195-6574-EJ-Vol5-No3-6
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Abstract:
This paper reports some preliminary results from an ongoing study that uses regression methods to break down total household load into its constituent parts, each associated with a particular electricity-using end use or appliance. The data base used for this purpose consists of 15-minute integrated demand readings on a random sample of statistical control group customers from the Los Angeles Department of Water and Power TOD (time of day)-pricing experiment for the months of August 1978 (132 customers), 1979 (108 customers), and 1980 (80 customers). Twenty-four regression equations are fitted, each one aimed at explaining variation in the time-averaged load (averaged over days of the month) over customers as a function of temperature, house size, and binary indicator variables that indicate the presence or absence of each of the end uses of interest. This sort of method for extracting the individual contributions of end uses to total household load has become known as conditional demand analysis (Parti and Parti, 1981). The success of this method for isolating end-use loads statistically, without direct metering of the appliance, depends crucially on whether the ownership patterns of appliances are well mixed. For example, if (as in our sample) everyone owns at least one refrigerator, it will be impossible to isolate refrigerator load. Similarly,



A Note on Measuring Household Welfare Effects of Time-of-Use (TOU) Pricing

Chi-Keung Woo

Year: 1984
Volume: Volume 5
Number: Number 3
DOI: 10.5547/ISSN0195-6574-EJ-Vol5-No3-12
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Abstract:
Several recent studies address the issue of household welfare effects caused by the implementation of time-of-use (TOU) pricing of electricity (for example, see Aigner and Lillard, 1982; Aigner and Learner, 1982; Parks, 1983; and Caves et al., 1983). In these studies, the historical average price is used to assess the household welfare change. Implicit in their approach is the assumption that the original electricity rate structure is a flat one. In fact, however, the common rate structure is multitier, frequently an inverted block. While the literature on demand for electricity includes extensive discussions of whether the average price or the marginal price is the correct price signal to a residential customer (e.g., Taylor, 1975; Nordin, 1976; Terza and Welch, 1982; and Billings, 1982), little attention has been given to evaluating welfare change resulting from TOU pricing.



An Application of the Expenditure Function in Electricity Pricing: Optimal Residential Time-of-Use Rate Option

Chi-Keung Woo

Year: 1985
Volume: Volume 6
Number: Number 2
DOI: 10.5547/ISSN0195-6574-EJ-Vol6-No2-7
View Abstract

Abstract:
Caves et al. (1983) recently reported that mandatory time-of-use (TOU) pricing for residential customers served by four Illinois electric utilities fails to pass the cost-benefit test. Gains in economic efficiency are outweighed by the relatively high TOU meter costs. An obvious alternative is to offer a TOU rate option for which customer participation is voluntary (see, for example, Woo et al. [1983, Section D] and Malko and Faruqui [1980, pp. 161-62]). The problem of optimal pricing under self-selection has been analyzed by Faulhaber and Panzar (1977), Panzar and Sibley (1978), and Mirman and Sibley (1980). Following these studies, this paper derives the optimal electricity prices when a customer can choose between paying the TOU rates and the full incremental costs of a TOU meter and remaining on a flat rate schedule. My approach departs from the earlier studies in using the expenditure function to characterize the optimization problem as described by Diamond and McFadden (1974).



Industrial and Commercial Demand for Electricity by Time of Day

Derek Bosworth and Clive Pugh

Year: 1985
Volume: Volume 6
Number: Number 3
DOI: 10.5547/ISSN0195-6574-EJ-Vol6-No3-8
View Abstract

Abstract:
The initial stimulus for this note came from Chung and Aigner (1981), which examined the impact of a major change in electricity tariff structure on industrial and commercial electricity demands. Using a translog cost function the authors investigate the effects on consumption of a change in the pricing practices of the Pacific Gas and Electricity Corporation (PGEC). Instead of charging a uniform price for electricity throughout the 24-hour period, PGEC switched to a "time of use" (TOU) pricing regime. The model performed well for 10 of the 13 industry groups over the 41-month period, and indicated a considerable variation across industries in the impact of TOU pricing. The authors find a general pattern of moderate response to TOU pricing in the peak period and some substitution among electricity demands over other times of the day. The industries that showed the most elastic demands were logging camps, paper mills, industrial gases, and cement manufacturers (as well as shopping centers and educational institutions in the nonmanufacturing sector). The limited available evidence suggests that a similar diversity of responses exists across industries in other countries (Mitchell, Manning, and Acton 1978, pp. 89-120).



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

Chi-Keung Woo

Year: 1985
Volume: Volume 6
Number: Number 4
DOI: 10.5547/ISSN0195-6574-EJ-Vol6-No4-9
View Abstract

Abstract:
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.



A Residential Demand Charge: Evidence from the Duke Power Time-of-Day Pricing Experiment

Thomas N. Taylor and Peter M. Schwarz

Year: 1986
Volume: Volume 7
Number: Number 2
DOI: 10.5547/ISSN0195-6574-EJ-Vol7-No2-10
View Abstract

Abstract:
Demand charges account for one-third to one-half of industrial and commercial electricity bills, and yet they have been virtually ignored, both theoretically and practically, as a component of residential tariffs. Our objective here is twofold: (1) to model and test the effects of a time-of-use demand charge on residential consumer behavior and (2) to evaluate, theoretically and empirically, its influence on utility system peak. Among the pragmatic issues are the effects of sustained hot weather on household response and the effects of the charge on demand at time of system peak compared to billing demand.



Service Reliability and the Optimal Interruptible Rate Option in Residential Electricity Pricing

Chi-Keung Woo and Nate Toyama

Year: 1986
Volume: Volume 7
Number: Number 3
DOI: 10.5547/ISSN0195-6574-EJ-Vol7-No3-10
View Abstract

Abstract:
Recent research on electricity pricing extends the traditional peak load pricing problem in many directions. Some notable studies include the time-of-use (TOU) papers by Crew and Kleindorfer (1976, 1978); the cycling analysis by Dansby (1977); the Demand Subscription Service (DSS) studies by Tschirhart and Jen (1979), Panzar and Sibley (1978), and Marchand (1974). Central to these papers is the role played by demand uncertainty in determining the optimal electricity rate structure and capacity planning. With the exception of Tschirhart and Jen and Marchand, these papers do not directly address the question of service reliability from the customer's perspective. Moreover, the supply-side uncertainty caused by random plant outages (as indicated by Chao, 1983) is largely ignored. Finally, these studies, though elegant and innovative, do not analyze the problem of residential rate options, which recently have gained considerable popularity in the United States, especially in California.



The Response of Large Firms to Different Schemes of Time-of-Use Pricing When the Production Function is Quadratic

Asher Tishler

Year: 1989
Volume: Volume 10
Number: Number 2
DOI: 10.5547/ISSN0195-6574-EJ-Vol10-No2-6
View Abstract

Abstract:
This paper constructs a model of firms' behavior before and after the introduction of time-of-use (TOU) pricing of electricity, encompassing optimal behavior under both flat-rate and time-of-use pricing. The model aims to be consistent, constraining those parameters not affected by time-of-use pricing so that they are the same under both price schemes. However, it also accounts for the new conditions (structure) under which the firm must operate once time-of-use pricing is adopted. The results show that the optimal capital under the flat rate is identical to that under revenue-neutral TOU. Almost all the firm's adjustments take place at the time that the time-of-use pricing is introduced, and only very few additional adjustments take place in the long run. These results contradict the widely-held belief that the firm cannot redistribute its electricity use over the day very quickly but can do so in the long run, once the capital input has adjusted to the new conditions.



Complementarity-Substitution Relationshipsin the Demand for Time-Differentiated Inputs under Time-of-Use Pricing

Asher Tishler

Year: 1991
Volume: Volume 12
Number: Number 3
DOI: 10.5547/ISSN0195-6574-EJ-Vol12-No3-9
View Abstract

Abstract:
In this paper we incorporate the non-synchronic responses of different inputs to changes in relative factor prices and develop sufficient conditions under which time-differentiated (over the day) electricity inputs are complements or substitutes. Similar sufficient conditions are developed for time-differentiated labour inputs. We also examine the strong and sometimes one-directional, relationships between the distributions over the day of the demands for labour and electricity. These relationships depend, among other factors, on the objective function of the fine (profit maximization, cost minimization) and on the specific time-of-use (TO U) schedules (of labour, electricity, etc.). Our results are also dependent on the assumption that firms can adjust inputs to changes in input prices on an hourly basis; more specifically, the underlying technology is assumed to be given by an hourly production function. Two issues are emphasized in the analysis. First, we show that short-run cost minimization may be an inappropriate procedure for cost-benefit analysis. Second, under the model developed in this paper, the commonly used weak separability assumption (between electricity and other inputs) implies radically different relationships among the time-differentiated inputs under profit maximization and cost minimization.




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