The Long-Run Effects of a Time-of-Use Demand Charge

Modifications in demand due to time-of-use (TOU) pricing have potential to improve the efficiency of electric power supply. With long lead times for plant construction, utility planners need long-run estimates of response to TOU rates. Existing evidence is primarily drawn from short-run TOU experiments. We provide estimates of long-run response to a nonexperimental residential TOU rate offered by Duke Power. The rate contains a demand charge applied to the maximum rate of energy consumption during the peak period. We find that customer response increases over time in a manner that enhances the ability of TOU rates to reduce system peak.