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The Response of Industrial Customers to Electric Rates Based upon Dynamic Marginal Costs


  • Herriges, Joseph A, et al


Recent advances in technology and in the theory of electric utility operations and planning have led to an increased interest in rate and service options that are differentiated over short time intervals. The purpose of this paper is to describe the results from an analysis of a real-time pricing experiment recently conducted at Niagara Mohawk Power Corporation. The objective of the experiment is to measure the response of large industrial customers to dynamic, fully time-differentiated, marginal cost-based electricity rates over a broad range of industries. Because of its design features, including the establishment of an experimental control group, the Niagara Mohawk study provides a rare opportunity to study large user response to real-time pricing, including inter-hour price elasticities. Coauthors are S. Mostafa Baladi, Douglas W. Caves, and Bernard F. Neenan. Copyright 1993 by MIT Press.

Suggested Citation

  • Herriges, Joseph A, et al, 1993. "The Response of Industrial Customers to Electric Rates Based upon Dynamic Marginal Costs," The Review of Economics and Statistics, MIT Press, vol. 75(3), pages 446-454, August.
  • Handle: RePEc:tpr:restat:v:75:y:1993:i:3:p:446-54

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    References listed on IDEAS

    1. Arrau, Patricio & De Gregorio, Jose & Reinhart, Carmen M. & Wickham, Peter, 1995. "The demand for money in developing countries: Assessing the role of financial innovation," Journal of Development Economics, Elsevier, vol. 46(2), pages 317-340, April.
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    Cited by:

    1. Hopper, Nicole & Goldman, Charles & Bharvirkar, Ranjit & Neenan, Bernie, 2006. "Customer response to day-ahead market hourly pricing: Choices and performance," Utilities Policy, Elsevier, vol. 14(2), pages 126-134, June.
    2. Robert H. Patrick & Frank A. Wolak, 2001. "Estimating the Customer-Level Demand for Electricity Under Real-Time Market Prices," NBER Working Papers 8213, National Bureau of Economic Research, Inc.
    3. Pascal Courty & Mario Pagliero, 2011. "Does responsive pricing smooth demand shocks?," Applied Economics, Taylor & Francis Journals, vol. 43(30), pages 4707-4721.
    4. Thomas Taylor & Peter Schwarz, 2000. "Advance notice of real-time electricity prices," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 28(4), pages 478-488, December.
    5. Wai Choi & Anindya Sen & Adam White, 2011. "Response of industrial customers to hourly pricing in Ontario’s deregulated electricity market," Journal of Regulatory Economics, Springer, vol. 40(3), pages 303-323, December.
    6. Allcott, Hunt, 2011. "Rethinking real-time electricity pricing," Resource and Energy Economics, Elsevier, vol. 33(4), pages 820-842.
    7. Thomas Taylor & Peter Schwarz & James Cochell, 2005. "24/7 Hourly Response to Electricity Real-Time Pricing with up to Eight Summers of Experience," Journal of Regulatory Economics, Springer, vol. 27(3), pages 235-262, January.
    8. Kim, Min-Jeong, 2017. "A field study using an adaptive in-house pricing model for commercial and industrial customers in Korea," Energy Policy, Elsevier, vol. 102(C), pages 189-198.
    9. Zarnikau, Jay & Thal, Dan, 2013. "The response of large industrial energy consumers to four coincident peak (4CP) transmission charges in the Texas (ERCOT) market," Utilities Policy, Elsevier, vol. 26(C), pages 1-6.
    10. Hunt Allcott, 2012. "The Smart Grid, Entry, and Imperfect Competition in Electricity Markets," NBER Working Papers 18071, National Bureau of Economic Research, Inc.
    11. Courty, Pascal & Pagliero, Mario, 2003. "Does Responsive Pricing Increase Efficiency? Evidence from Pricing Experiments in an Internet Café," CEPR Discussion Papers 4149, C.E.P.R. Discussion Papers.
    12. Stephen P. Holland & Erin T. Mansur, 2008. "Is Real-Time Pricing Green? The Environmental Impacts of Electricity Demand Variance," The Review of Economics and Statistics, MIT Press, vol. 90(3), pages 550-561, August.
    13. Kopsakangas Savolainen, Maria & Svento, Rauli, 2012. "Real-Time Pricing in the Nordic Power markets," Energy Economics, Elsevier, vol. 34(4), pages 1131-1142.
    14. Jang, Dongsik & Eom, Jiyong & Jae Park, Min & Jeung Rho, Jae, 2016. "Variability of electricity load patterns and its effect on demand response: A critical peak pricing experiment on Korean commercial and industrial customers," Energy Policy, Elsevier, vol. 88(C), pages 11-26.

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