Effects of Voluntary Time-of-Use Pricing on Summer Electricity Usage of Business Customers

Economic inefficiency can be caused by time-invariant retail electricity prices because they do not reflect variations in the cost of providing electricity during the day. Time-of-use (TOU) pricing—higher electricity prices during peak hours and lower electricity prices during off-peak hours—is by far the most common way to achieve more efficient levels of electricity consumption through reducing peak demand. The empirical evidence of the effectiveness of TOU pricing is sparse in the commercial and industrial sectors and there is no consensus in the literature on the statistical significance and magnitude of the effects. Applying a quasi-experimental design, this study evaluates an ongoing experiment of voluntary business TOU pricing plan by a major utility company in the Phoenix metropolitan area. Using the nearest-neighbor matching method, we identify control customers for the voluntary participants of the business TOU pricing. From difference-in-differences analysis, we find a statistically significant reduction in peak-hour electricity demand in response to the TOU pricing. We also find that there is no conservation effect, meaning that the total level of electricity consumption does not change under the TOU pricing.