Does Real-Time Pricing Deliver Demand Response? A Case Study of Niagara Mohawk's Large Customer RTP Tariff

Real-time pricing (RTP) is advocated as the most economically efficient way to invoke demand response (DR) benefits, yet actual customer experience is limited and thinly documented. This study examines the experience of 130 large (over 2 MW) industrial, commercial and institutional customers at Niagara Mohawk Power Corporation that have faced day-ahead electricity market prices as their default tariff since 1998. It is the first study of large customer response to RTP in the context of retail competition. Through a survey and interviews, we examine how customers adapted to RTP (their satisfaction, hedging choices, adoption of DRenabling technologies and response capability), and we combined survey information with customer billing data to quantify price response. We find that customers are relatively satisfied. In 2003, 50-55% were exposed to RTP; many say they’d prefer to hedge but attractively priced options are rare. Only 45% of survey respondents have installed DR-enabling technologies since 1998. 54% indicated they were not price responsive at all; of the rest, most employ “low-tech” curtailment strategies and do not reschedule usage. Average price response estimates are modest: the overall substitution elasticity is 0.14. Surprisingly, government/educational customers display the highest response (0.30); industrial response is similar to past research findings (0.11) and commercial customers are least responsive (0.00). New York Independent System Operator DR programs significantly boost industrial participants’ price response when events are called. Default RTP does deliver modest DR benefits, but is best viewed as part of a portfolio of DR options.