Research on Customer Response to Dynamic Pricing

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Commercial and industrial (C&I) demand response

• Customer response is usually moderate but statistically significant

• The amount of response varies widely among customers

• The response is highly concentrated in a few customers

• Overall elasticities of substitution average less than 0.1

► So, if the price ratio between hourly prices is doubled, the corresponding quantity ratio goes down by 10 percent

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A report prepared for SDG&E in 2001 summarized the response of utility C&I customers to RTP rates

Year Utility % Reduction in Load High Price ($/kWh)

1988 PG& E 5 to 9 0.4SCE 7 1.36Niagara Mohawk 36 0.24

1989 PG& E 3 0.39SCE -3 1.36SCE 16 2.7Niagara Mohawk 20 0.5

1990 PG& E 10 0.39Niagara Mohawk 12 0.14

1999 Duke 20 0.4Georgia Power (Hour Ahead) 60 2Georgia Power (Day Ahead) 25 1.5

RTP Customer Load Response at High Prices

•The percent reduction in load may reach substantial levels when prices are high enough•There is high variation in load reductions achieved under different utility programs for similar prices

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Utility C&I RTP response (I)

Niagara Mohawk ► Elasticity of substitution averaged 0.13 ► Individual responses varied dramatically

Georgia Power Company (early period) Runs the nation’s largest RTP program with some 1,700

customers and 5,000 MW of load Under emergency conditions, load drops by 17 percent (800

MW) More than half of the customers respond to RTP in a

statistically significant way Electricity intensive customers respond more than others Presence of on-site generation increases responsiveness

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Utility C&I RTP response (II)

• Georgia Power Company (later period) ► Focused on price response during the summer of 1999, when

RTP prices on a few days reached very high levels► Large industrial customers faced hour-ahead (HA) prices while

the remainder faced day-ahead (DA) prices► On moderately high-price days:

■ HA customers reduced their load by 30%■ DA customers reduced their load by 10%

► Own-price elasticities are estimated at price levels ranging from $.25 to $1.00/kWh

■ -0.21 to -0.28 for HA customers ■ -0.05 to -0.08 for DA customers

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Utility C&I RTP response (III)

• Duke Power Company► 100 large industrial customers~=1,000 MW of load ► Only 25% of the customers responded significantly► The overall elasticity of substitution was .04 ► Very large elasticities were estimated for customers with

on-site generation

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C&I customers also respond to RTP in restructured markets

• The elasticities of substitution vary by market segment ► Commercial 0.06► Government/Education 0.10► Health Care 0.04► Manufacturing 0.16► Public Works 0.02

• Presence of on-site generation (DG) results in substantially higher elasticities

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Residential customers also respond to dynamic prices

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