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Equity in Residential Electricity Pricing

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  • Shira Horowitz and Lester Lave

Abstract

Real-time pricing of electricity is theoretically more economically efficient than flat rate pricing. However, a switch from flat-rates to real-time rates means that many consumers will lose the cross-subsidy they are receiving under the flat rate, and may see an increase in their bills even if they have elastic demand. We use hourly load data from 1260 Commonwealth Edison residential customers on a standard flat rate electricity tariff from 2007 and 2008. We calculate which customers would have been better off and which customers would not under real time pricing with both elastic and inelastic demand and look at the general characteristics of these customers. We find that if customers do not respond to prices under RTP, then only 35% of customers save money, while the remainder loses. The greatest potential for savings is from reduction in capacity costs.
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Suggested Citation

  • Shira Horowitz and Lester Lave, 2014. "Equity in Residential Electricity Pricing," The Energy Journal, International Association for Energy Economics, vol. 0(Number 2).
    • Handle: RePEc:aen:journl:ej35-2-01
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    1. 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.
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    Cited by:

    1. Covington, Hannah & Woo-Shem, Brian & Wang, Chenli & Roth, Thomas & Nguyen, Cuong & Liu, Yuhong & Fang, Yi & Lee, Hohyun, 2024. "Method for evaluating fairness of electricity tariffs with regard to income level of residential buildings," Applied Energy, Elsevier, vol. 353(PB).
    2. Anette Boom & Sebastian Schwenen, 2021. "Is real-time pricing smart for consumers?," Journal of Regulatory Economics, Springer, vol. 60(2), pages 193-213, December.
    3. Cédric Clastres & Haikel Khalfallah, 2014. "An analytical approach for elasticity of demand activation with demand response mechanisms," Working Papers halshs-01019679, HAL.
    4. Lorraine Conway & David Prentice, 2020. "How Much do Households Respond to Electricity Prices? Evidence from Australia and Abroad," Economic Papers, The Economic Society of Australia, vol. 39(3), pages 290-311, September.
    5. Cédric Clastres & Haikel Khalfallah, 2021. "Dynamic pricing efficiency with strategic retailers and consumers: An analytical analysis of short-term market interactions," Post-Print hal-03193212, HAL.
    6. Cédric Clastres & Haikel Khalfallah, 2020. "Retailers' strategies facing demand response and markets interactions," Working Papers hal-03167543, HAL.
    7. Clastres, Cédric & Khalfallah, Haikel, 2021. "Dynamic pricing efficiency with strategic retailers and consumers: An analytical analysis of short-term market interactions," Energy Economics, Elsevier, vol. 98(C).
    8. Ansarin, Mohammad & Ghiassi-Farrokhfal, Yashar & Ketter, Wolfgang & Collins, John, 2020. "Cross-subsidies among residential electricity prosumers from tariff design and metering infrastructure," Energy Policy, Elsevier, vol. 145(C).
    9. Clastres, Cédric & Khalfallah, Haikel, 2015. "An analytical approach to activating demand elasticity with a demand response mechanism," Energy Economics, Elsevier, vol. 52(PA), pages 195-206.
    10. Simshauser, Paul, 2016. "Distribution network prices and solar PV: Resolving rate instability and wealth transfers through demand tariffs," Energy Economics, Elsevier, vol. 54(C), pages 108-122.
    11. Krishnamurthy, Chandra Kiran B. & Vesterberg, Mattias & Böök, Herman & Lindfors, Anders V. & Svento, Rauli, 2018. "Real-time pricing revisited: Demand flexibility in the presence of micro-generation," Energy Policy, Elsevier, vol. 123(C), pages 642-658.
    12. Cédric Clastres & Haikel Khalfallah, 2015. "An Analytical Approach to Activating Demand Elasticity with a Demand Response Mechanism," Post-Print hal-01222582, HAL.
    13. Andersen, F.M. & Gunkel, P.A. & Jacobsen, H.K. & Kitzing, L., 2021. "Residential electricity consumption and household characteristics: An econometric analysis of Danish smart-meter data," Energy Economics, Elsevier, vol. 100(C).

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