CSEM WP 151 Residential Customer Response to Real-Time Pricing: The Anaheim Critical-Peak Pricing Experiment

This paper analyzes the results of a critical peak pricing (CPP) experiment involving 123 residential customers of the City of Anaheim Public Utilities (APU) over the period June 1, 2005 to October 14, 2005. Using a nonparametric condition mean estimation framework that allows for customer-specific fixed effects and day-of-sample fixed effects, I find that customers in the treatment group consumed an average of 12 percent less electricity during the peak hours of the day on CPP days than customers in the control group. There is also evidence that this reduction in consumption for customers in the treatment group relative to customers in the control group is larger on higher temperature CPP days. The impact of CPP events is confined to the peak periods of CPP days. Mean electricity consumption by customers in the treatment group is not significantly different from that of customers in the control group during the peak or off-peak periods of the day before or day after a CPP event. Much of the estimated consumption reduction of treatment consumers relative to control group consumers during peak periods of CPP days is due to reductions from a higher level of consumption by treatment group customers in non-CPP days. The consumption reductions paid rebates during CPP days are almost 7 times the reduction in consumption due to CPP events predicted by the treatment effects estimate, which provides strong evidence of an overly generous method for setting the reference level for peak period consumption relative to which customers are issued refunds during CPP days. The paper closes with a discussion of the challenges associated with implementing a CPP rate with a rebate mechanism as the default rate for residential customers.