Customer Responsiveness to Real-Time Pricing of Electricity *

The success of real-time pricing efforts will depend in large part upon the extent to which electricity consumers are able to alter their consumption patterns in response to the prices quoted by the utility. This article provides some original estimates of hourly price elasticity responses to real-time prices by large industrial energy consumers.

An econometric translog cost function methodology was adopted for this purpose. Using data for large industrial users in 1986, the estimated own-price elasticity response averaged -0.09, implying a small but significant reaction to the changing hourly prices. Design deficiencies in the particular rate program studied may have limited customer reaction.