Customer Response to RTP in Competitive Markets: A Study ofNiagara Mohawk's Standard Offer Tariff

Utilizing load, price, and survey data for 119 largecustomers that paid competitively determined hourly electricity pricesannounced the previous day between 2000 and 2004, this study providesinsight 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 fromthe grid, as for some firms with on-site generation. The averageelasticity of substitution is 0.11. Thirty percent of the customers usepeak and off-peak electricity in fixed proportions. The 18 percent withelasticities greater than 0.10 provide 75 percent of the aggregate priceresponse. In contrast to Industrial customers, Commercial/Retail andGovernment/Education customers are more price responsive on hot days andwhen the ratio of peak to off-peak prices is high. Price responsivenessis not substantially reduced when customers operate near peak usage.Diversity of customer circumstances and price response suggest dynamicpricing is suited for some, but not all customers.