Smart meter, customer choice and profitable time-of-use rate option

We describe the results of a time-of-use (TOU) rate option experiment which demonstrates that offering a TOU option can be profitable to a utility. The option's profitability is attributable to: (1) smart meters; (2) large price differentials between TOU periods that minimize the adverse selection problem of free-riders; and (3) the success of marketing efforts that enhance customer acceptance. This finding refutes the common belief that Sate options are necessarily unprofitable to a utility and unwanted by small users. We explore the significance and relevance of our findings in the emerging world or retail access. TOU rate options will continue to be useful to unregulated energy suppliers, regulated wires companies and electricity consumers. (C) 1999 Elsevier Science Ltd. All rights reserved.