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Intraclass Price Elasticity & Electric Rate Design
Abstract
Electric rate design relies on cost incurrance
for pricing and pricing structures. However,
as utilities move into a marketing mode, rate
design needs to respond more to customer reactions
to pricing changes. Intraclass price elasticities
aid rate designers by estimating customer behavior
to change.
Intraclass price elasticities vary with
customer usage. The more energy used by a customer,
the greater the amount of elasticity. For an industrial
customer, this means that all energy consumed
up to the amount necessary for base operations
is relatively inelastic. All energy consumption
beyond this becomes more elastic as usage increases.
In the book "Innovative Electric Rates," John
Chamberlin and Charles Dickson utilize an economic
model to test conservation programs. This model
utilizes intraclass price elasticities and has a
direct use in current electric rate design. The
model is a strong indicator of how best a company's
electric prices and pricing structures manage demand-side
growth, increase energy sales consumption, and
aide in non-discriminatory economic development.
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Citation
Gresham, K. E. (1987). Intraclass Price Elasticity & Electric Rate Design. Energy Systems Laboratory (http://esl.eslwin.tamu.edu). Available electronically from https : / /hdl .handle .net /1969 .1 /92815.