The response of small and medium‐size business customers to Time‐of‐Use (TOU) electricity rates in Israel

This paper reports on the methodology, data, and results of the Israeli Time‐of‐Use (TOU) electricity pricing experiment in the industrial/commercial sector. We concentrate on the estimation of the demand functions for electricity under TOU, and the net welfare gains which result from applying TOU rates to small and medium‐size business customers in Israel. This experiment, which was preceded by a 15‐month load research study to allow an optimal sample design, was concluded in June 1992. The analysis yielded four major conclusions: (1) The estimated gains of small and medium‐size customers in Israel from TOU rates are sufficient to justify investment in TOU metering technology. (2) There have been small, but noticeable, shifts of electricity from the peak to the mid‐peak (if relevant) and to the off‐peak periods during all seasons of the year, and particularly during the winter. (3) The structure and number of labour shifts during the day, and weather, are important factors in determining the response of business customers to the TOU rates. (4) Price elasticities vary substantially over the seasons and across SIC groups; they do not vary with customer size.