Consumer Response to Critical Peak Pricing of Electricity and Conservation Requests

Using data from a series of field experiments for the fiscal years 2012–13, this chapter investigates consumers’ electricity use in response to critical peak pricing (CPP) and conservation requests (CRs). CPP stimulates consumers’ extrinsic motivation to conserve energy by applying higher prices to electricity usage during peak periods. This is a plausible approach since electricity pricing affects the monetary reward of conservation and higher prices create conservation that is more beneficial. By asking households to voluntarily reduce consumption during peak periods, CRs stimulate intrinsic motivations, such as altruism and the “warm glow,” which enhance consumers’ utility through energy conservation. The empirical results based on a linear approximate almost ideal demand system imply that both CPP and CRs contributed to reducing electricity usage during peak periods. In absolute terms, the elasticity of the peak electricity demand with respect to the electricity price at the sample average ranged from 0.157 to 0.389. These estimates of price elasticity exceeded those found in previous studies on CPP. CRs reduced electricity demand during peak hours by 4.0–5.1 %. These peak-reducing estimates of CRs were lower than the effects of public appeals to conserve energy in the United States.