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Effective and Equitable Adoption of Opt-In Residential Dynamic Electricity Pricing

  • S. Borenstein


Time-varying retail electricity pricing is very popular with economists, but has little support among regulators and consumers. I propose an opt-in time-varying residential pricing plan that would be equitable to both customers who opt in and those who don’t. Low-income households would, on average, see almost no change in their bills under time-varying pricing, while low-consumption households would see their bills decline somewhat and high-consumption households would see their bills rise. Most importantly, I show that the opt-in approach is unlikely to increase the flat rate charged to other customers by more than a few percentage points. Copyright Springer Science+Business Media New York 2013

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Article provided by Springer in its journal Review of Industrial Organization.

Volume (Year): 42 (2013)
Issue (Month): 2 (March)
Pages: 127-160

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Handle: RePEc:kap:revind:v:42:y:2013:i:2:p:127-160
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  1. Herter, Karen & McAuliffe, Patrick & Rosenfeld, Arthur, 2007. "An exploratory analysis of California residential customer response to critical peak pricing of electricity," Energy, Elsevier, vol. 32(1), pages 25-34.
  2. Severin Borenstein, 2005. "The Long-Run Efficiency of Real-Time Electricity Pricing," The Energy Journal, International Association for Energy Economics, vol. 0(Number 3), pages 93-116.
  3. Severin Borenstein, 2007. "Customer Risk from Real-Time Retail Electricity Pricing: Bill Volatility and Hedgability," The Energy Journal, International Association for Energy Economics, vol. 0(Number 2), pages 111-130.
  4. Koichiro Ito, 2012. "Do Consumers Respond to Marginal or Average Price? Evidence from Nonlinear Electricity Pricing," NBER Working Papers 18533, National Bureau of Economic Research, Inc.
  5. Severin Borenstein, 2002. "The Trouble With Electricity Markets: Understanding California's Restructuring Disaster," Journal of Economic Perspectives, American Economic Association, vol. 16(1), pages 191-211, Winter.
  6. Severin Borenstein & Stephen Holland, 2005. "On the Efficiency of Competitive Electricity Markets with Time-Invariant Retail Prices," RAND Journal of Economics, The RAND Corporation, vol. 36(3), pages 469-493, Autumn.
  7. Faruqui, Ahmad & George, Stephen, 2005. "Quantifying Customer Response to Dynamic Pricing," The Electricity Journal, Elsevier, vol. 18(4), pages 53-63, May.
  8. Severin Borenstein, 2010. "The Redistributional Impact of Non-linear Electricity Pricing," NBER Working Papers 15822, National Bureau of Economic Research, Inc.
  9. Severin Borenstein, 2007. "Wealth Transfers Among Large Customers from Implementing Real-Time Retail Electricity Pricing," The Energy Journal, International Association for Energy Economics, vol. 0(Number 2), pages 131-150.
  10. Kahn, Alfred E, 1979. "Applications of Economics to an Imperfect World," American Economic Review, American Economic Association, vol. 69(2), pages 1-13, May.
  11. Alexander, Barbara R., 2010. "Dynamic Pricing? Not So Fast! A Residential Consumer Perspective," The Electricity Journal, Elsevier, vol. 23(6), pages 39-49, July.
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