Customer Response to RTP in Competitive Markets: A Study of Niagara Mohawk’s Standard Offer Tariff

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Abstract
Utilizing load, price, and survey data for 119 large customers that paid competitively determined hourly electricity prices announced the previous day between 2000 and 2004, this study provides insight into the factors that determine the intensity of price response. Peak and off-peak electricity can be: perfect complements, substitutes, or substitutes where high peak prices cause temporary disconnection from the grid, as for some firms with on-site generation. The average elasticity of substitution is 0.11. Thirty percent of the customers use peak and off-peak electricity in fixed proportions. The 18% with elasticities greater than 0.10 provide 75% of the aggregate price response. In contrast to Industrial customers, Commercial/Retail and Government/Education customers are more price responsive on hot days and when the ratio of peak to off-peak prices is high. Price responsiveness is not substantially reduced when customers operate near peak usage. Diversity of customer circumstances and price response suggest dynamic pricing is suited for some, but not all customers.