Potential problems with large scale differential pricing programs

Flat rate prices for residential customers have historically enhanced the ability of system operators to predict demand by providing a smooth, certain price signal, thus reducing risk in meeting the need to instantaneously balance supply and demand in electricity systems/markets. The desire to reduce peak loads, however, has lead to exploration of dynamic pricing, including time of use and critical peak pricing programs. These programs are currently in the pilot stage throughout the US, with low overall participation by residential load. Large-scale participation in dynamic pricing programs can cause unwanted consequences that will not be observed in small-scale programs. This paper investigates several potential negative consequences from large-scale participation in existing dynamic pricing programs. These include: the rebound effect, coincident load shifting/shedding, and limitations of fixed, uniform pricing periods.