Rethinking Real-Time Electricity Pricing

Most US consumers are charged a near-constant retail price for electricity, despite substantial hourly variation in the wholesale market price. This paper evaluates the …rst program to expose residential consumers to hourly real-time pricing (RTP). I …nd that enrolled households are statistically signi…cantly price elastic and that consumers responded by conserving energy during peak hours, but remarkably did not increase average consumption during o¤-peak times. The program increased consumer surplus by $10 per household per year. While this is only one to two percent of electricity costs, it illustrates a potential additional bene…t from investment in retail Smart Grid applications, including the advanced electricity meters required to observe a household’s hourly consumption. JEL Codes: C93, L51, L94, Q41. Keywords: Real time electricity pricing, energy demand, randomized …eld experiments. — — — — — — — — — — — — — — — — — — — — — — — — — — — — I thank, without implicating, Alberto Abadie, Severin Borenstein, Kenny Gillingham, Michael Greenstone, Bill Hogan, Erich Muehlegger, Larry Katz, Erin Mansur, Sendhil Mullainathan, Paul Niehaus, Chris Nosko, Ariel Pakes, Dave Rapson, Rob Stavins, Frank Wolak, and seminar participants at Duke, Georgetown, Harvard, IBS Hyderabad, Michigan, NYU Department of Economics, NYU Stern, Notre Dame, Resources for the Future, Stanford, Tufts, and UC Davis. Marjorie Isaacson, Larry Kotewa, and Anthony Star of the Center for Neighborhood Technology allowed my access to the household electricity demand data. Financial support is acknowledged from the Harvard University Center for the Environment and from Harvard’s Mossavar-Rahmani Center for Business and Government.