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Research on Customer Response to Dynamic Pricing

Research on Customer Response to Dynamic Pricing. 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

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Research on Customer Response to Dynamic Pricing

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  1. Research on Customer Response to Dynamic Pricing

  2. 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

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

  4. 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

  5. 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

  6. 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

  7. 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

  8. Residential customers also respond to dynamic prices

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