Public Utilities Reports

PUR Guide 2012 Fully Updated Version

Available NOW!
PUR Guide

This comprehensive self-study certification course is designed to teach the novice or pro everything they need to understand and succeed in every phase of the public utilities business.

Order Now

Predicting California Deman Response

How do customers react to hourly prices?
Fortnightly Magazine - July 1 2003

peak days as on average summer weekdays and often reduce peak load even more on system peak days (see Figure 2).

Voluntary Versus Mandatory Programs

California's SPP is a voluntary program. At least two groups of researchers have looked at whether volunteers in time-of-use programs self-select into the program because they tend to have more off-peak consumption and, therefore, receive discounts (from lower off-peak prices) without shifting any additional load from peak to off-peak hours. Some observers call such customers "free riders," while others say such customers "are finally being relieved of the burden of subsidizing free riding customers." 3

Baladi, Herriges, and Sweeney (1994) found that the initial decision of residential customers to volunteer for the Midwest Power Systems (MWP) TOU tariff was largely unrelated to any observable pattern in the household's electricity usage or appliance ownership. They wrote, "Volunteers, on average, have essentially the same appliance holdings and usage patterns as non-volunteers. Thus, self-selection does not lead to revenue erosion for the utility."

Further, like customers who were automatically placed on TOU rates in other programs, participants in MWP's voluntary TOU tariff were found to significantly reduce their on-peak usage (by roughly 24 percent during the first summer season). Just as Aigner and Lillard found in their analysis, the MWP changes were larger on days when the system peaked, with on-peak usage dropping by more than 28 percent. In addi-tion, at MWP, the reductions in on-peak kilowatt-hours were not concentrated in any one on-peak hour, but were distributed proportionately throughout the on-peak period. Off-peak usage changes also tended to be proportional, with the exception that households tended to avoid shifting usage to those hours immediately adjacent to the on-peak period (i.e., shoulder hours). This latter result alleviated the concern that the TOU rates might create a secondary needle peak just outside of the on-peak hours.

Caves, Herriges, and Kuester (1989) reported similar results for Pacific Gas and Electric Co.'s voluntary TOU program.

Diversity of the Demand Response to Pricing

Several researchers have found that the strength of a customer's response will depend on total consumption, appliance holdings, weather, and other socio-demographic factors. For example, the MWP study found that the ability/willingness of individual households to respond to the TOU tariff was significantly influenced by their ownership of major electrical appliances, such as dishwashers, central air conditioners, and dehumidifiers; having more appliances meant a higher percentage reduction in on-peak kilowatt-hours induced by TOU pricing.

Reiss and White (2001) performed an extensive, statewide analysis on California households, estimating their model results using data from the Department of Energy's Residential Energy Consumption Survey (RECS). 4 As Baladi . found at MWP, Reiss and White, who did not use TOU data, did a particularly thorough job of documenting the relationship of appliance holdings and income levels to residential price response, as seen in Tables 4 and 5.

Reiss and White also looked at how price elasticities varied as a function of income, as shown in Table 5. The findings confirm intuition that consumers with lower income levels are more responsive to price increases.