8-G-i

APPENDIX 8-G. COMPARISON OF MARGINAL PRICES DERIVED FROM 

DEFAULT TARIFFS, TIME-OF-USE TARIFFS AND TIME DEPENDENT 

VALUATION

TABLE OF CONTENTS

8-G.1 INTRODUCTION .................................................................................................8-G-1

8-G.2 COMPARISON OF TOU AND DEFAULT TARIFF MARGINAL PRICES .....8-G-1

8-G.3 COMPARISON OF DEFAULT TARIFF, TOU TARIFFS, AND TDV 

MARGINAL PRICES ...........................................................................................8-G-4

LIST OF TABLES

Table 8-G.2.1 Whole building energy consumption for July (CD is census division) .....8-G-2

Table 8-G.3.1 California Climate Zone assignment for Hot-Dry Cities...........................8-G-5

LIST OF FIGURES

Figure 8-G.2.1 Comparison of the effective marginal price for each account ...................8-G-3

Figure 8-G.2.2 Effective marginal prices for all accounts, organized by census 

division.......................................................................................................8-G-4

Figure 8-G.3.1 Comparison of the effective marginal price for hot-dry region.................8-G-6

Figure 8-G.3.2 Effective default, TOU, and TDV marginal prices for hot-dry cities........8-G-6
8-G-1

APPENDIX 8-G. COMPARISON OF MARGINAL PRICES DERIVED FROM

DEFAULT TARIFFS, TIME-OF-USE TARIFFS AND TIME DEPENDENT 

VALUATION

8-G.1 INTRODUCTION

There is a concern that the electricity prices used in the life-cycle cost (LCC) and 

payback period (PBP) analysis do not reflect the real cost of serving system-peak coincident 

loads such as air-conditioning. There have been suggestions that basing electricity costs on timeof-use (TOU) tariffs would provide a more realistic picture of the real value of reducing peakcoincident electricity use. For the hot-dry region of the U.S., there have also been suggestions 

that time dependent valuation (TDV) would provide an even more realistic depiction of the real 

value of reducing peak-coincident electricity use than either default (i.e., non-TOU) or TOU 

tariffs. To investigate this issue, the DOE conducted an analysis to compare prices derived from 

default (i.e. non-TOU) tariffs and TOU tariffs. Further, DOE conducted an analysis to compare 

prices derived from default tariffs, TOU tariffs, and TDV specifically for the hot-dry region. The 

tariff data were collected as part of the Tariff Analysis Project (TAP) database update (see 

appendix 8-B).

8-G.2 COMPARISON OF TOU AND DEFAULT TARIFF MARGINAL PRICES

Many utilities offer optional TOU tariffs, but for the moment there are no utilities which 

have mandatory TOU tariffs for residential customers. The Federal Energy Regulatory 

Commission (FERC) 2008 staff report on demand response provides a figure (Figure III-15) that 

indicates approximately 1.2 million residential customers are on TOU tariffs.1 Based on the total 

residential consumer count from the Energy Information Administration (EIA) Form 861 

(2007),2 this represents less than 1 percent of all consumers. The penetration of TOU rates is thus 

still very low. For this reason, the Department does not include TOU tariffs in the sample used to 

develop electricity prices for the LCC.

Optional TOU tariff are included in the TAP database for all utilities that offer them. 

Currently, 48 of the 102 utilities in the sample offer TOU rates. These optional TOU tariffs are 

used here to determine whether the difference in electricity prices for TOU vs. non-TOU tariffs 

is significant for this rule-making. This determination can only be made for current rate 

structures; it may be repeated in the future as rate structures continue to evolve.

Each utility defines the hours associated with TOU periods (on-peak, off-peak and 

shoulder) differently. To correctly calculate electricity bills for TOU tariffs therefore requires 

hourly whole-building electricity consumption data. For this analysis, these data were obtained 

from EnergyPlus building simulations.3 The simulations use a prototype residential single-family 

detached home, with a central air conditioning (CAC) system and gas furnace, sited in twentytwo different weather locations. Two sets of simulations were performed, with CAC efficiencies 

of 13 SEER and 16 SEER. Both assume a single-speed air conditioner.
8-G-2

As in the LCC, a set of customer accounts are defined by pairing each residential building 

with all utilities in its region. For the analysis presented here, regions are defined as census 

divisions. For each building-utility pair, monthly utility bills are calculated using both the default 

tariff and the TOU tariff (utilities that do not offer TOU tariffs are not included in this analysis). 

For each account, the electricity cost savings are defined as the difference between the bill in the 

13 SEER case and the bill in the 16 SEER case. The energy savings are defined similarly. The 

effective marginal electricity price is defined as the ratio of the bill savings to the energy savings. 

The output of this analysis is summarized in Table 8-G.2.1 and Figures 8-G.2.1 and 8-

G.2.2. Seasonal rates can be represented by looking at data for January and July. For the month 

of January the energy savings between 13 and 16 SEER are essentially zero, so only data for July 

are presented. Table 8-G.2.1 shows, for each location, the monthly energy use in July in the 13 

and 16 SEER cases; the energy use is for the whole building, but the difference between the two 

is due to CAC only. The energy savings are also given as a percentage of the 13 SEER whole 

building load.

Table 8-G.2.1 Whole building energy consumption for July (CD is census division)

City State CD kWh SEER 13 kWh SEER 16 kWh Savings

Boston MA 1 1177 1064 9.6%

New York NY 2 1432 1282 10.5%

Chicago IL 3 1427 1279 10.4%

Kansas City MO 4 986 933 5.3%

Minneapolis MN 4 950 913 4.0%

Atlanta GA 5 1340 1184 11.6%

Miami FL 5 1234 1095 11.3%

Sterling VA 5 1202 1084 9.8%

Dallas TX 7 1460 1283 12.1%

El Paso TX 7 1200 1086 9.5%

New Orleans LA 7 1364 1210 11.3%

San Antonio TX 7 1292 1156 10.6%

Albuquerque NM 8 1207 1078 10.7%

Denver CO 8 953 893 6.3%

Las Vegas NV 8 1721 1468 14.7%

Phoenix AZ 8 2254 1872 16.9%

Tucson AZ 8 1605 1381 14.0%

Fresno CA 9 1529 1336 12.6%

Los Angeles CA 9 892 853 4.4%

Sacramento CA 9 1156 1053 8.9%

San Francisco CA 9 771 761 1.3%

Seattle WA 9 805 770 4.4%

Figures 8-G.2.1 and 8-G.2.2 summarize the output of the price calculations. Figure 8-

G.2.1 is a scatter plot of the effective marginal price for the TOU tariff vs. the effective marginal 
8-G-3

price for the default tariff. Each point represents one account, i.e. one building-utility pair. A 

diagonal line is included in the plot for reference. The data show that there is no coherent pattern 

of higher prices for TOU tariffs; in fact there are cases where the effective price is substantially 

lower than for the default tariff. This pattern is confirmed in Figure 8-G.2.2, which shows the 

default and TOU prices separately. The two sets of prices have been organized by census 

division for this plot. Figure 8-G.2.2 shows that the spread of TOU and default prices is 

comparable, with the exception of census division 4 (West North Central) where the TOU July 

price is substantially higher than the default price. 

These data show that, currently, there is no significant difference on average between 

TOU and default tariffs for the electricity costs used in the LCC. This may be due to several 

factors. For current tariffs, the commodity price (cents per kWh) in different TOU periods is 

often comparable to the default tariff price, and if the on-peak prices are higher the off-peak or 

shoulder prices are typically lower. The distribution of energy savings across the different TOU 

periods also has a strong impact on the effective marginal price. For residential cooling there 

may be significant appliance use outside the utility’s peak hours (which tend to be week-day 

afternoons), which will moderate the impact of higher on-peak prices.

Figure 8-G.2.1 Comparison of the effective marginal price for each account

0

5

10

15

20

25

30

35

40

0 10 20 30 40

Default price cents/kWh

TOU price cents/kWh

July y=x
8-G-4

Figure 8-G.2.2 Effective marginal prices for all accounts, organized by census 

division 

8-G.3 COMPARISON OF DEFAULT TARIFF, TOU TARIFFS, AND TDV

MARGINAL PRICES

The California Energy Commission (CEC) has developed TDV to value the energy for 

California’s building energy performance standards.4

 Under TDV, the value of electricity differs 

depending on time-of-use (hourly, daily, seasonal), and the value of natural gas differs depending 

on season. TDV is based on the cost for utilities to provide the energy at different times and is 

believed to provide a more realistic depiction of the real value of reducing peak-coincident 

electricity use.

Efficiency requirements that would improve the EER of a central air conditioner in the 

hot-dry region are under consideration by DOE because EER is believed to improve the 

performance of the equipment at peak conditions when the equipment is operating at its full 

capacity. Because TOU-based and marginal prices and TDV of electricity may be more 

representative of the true cost of electricity supply at peak-coincident conditions than marginal 

prices derived from default tariffs, DOE compared the three types of methods of valuing 

electricity for the hot-dry region. 

To investigate the impact of the TDV of electricity in the hot-dry region, DOE used 

CEC’s TDV method and applied it to the building energy simulations that were performed for 

the above eight cities that reside in the hot-dry region (Albuquerque, Las Vegas, Phoenix, 

Tucson, Fresno, Los Angeles, Sacramento, and San Francisco). A TDV of electricity has been 

0

5

10

15

20

25

30

35

40

1 2 3 4 5 6 7 8 9 10

Census Division

Price cents/kWh

July default July TOU
8-G-5

generated by the CEC for each of California’s 16 climate zones. For the four cities residing in 

California, each was matched to the TDV specific to its climate zone. For the four cities outside 

of California, the California climate zone with weather most similar to each city’s climate was 

used. Table 8-G.3.1 summarizes the California climate zones assigned to each of the hot-dry 

cities.

Table 8-G.3.1 California Climate Zone assignment for Hot-Dry Cities

City State California Climate Zone

Albuquerque NM 12

Las Vegas NV 15

Phoenix AZ 15

Tucson AZ 15

Fresno CA 13

Los Angeles CA 8

Sacramento CA 12

San Francisco CA 3

Figures 8-G.3.1 and 8-G.3.2 summarize the output of the price calculations for the hotdry region. Figure 8-G.3.1 is a scatter plot of the effective marginal price for the TOU tariff vs. 

the effective marginal price for the default tariff and the effective marginal price for the TDV of 

electricity vs. default tariff marginal price. A diagonal line is included in the plot for reference. 

The data show that prices for TOU tariffs for TDV are lower than for the default tariff. This 

pattern is confirmed in Figure 8-G.3.2, which shows the default, TOU, and TDV-based prices 

separately for each of the eight hot-dry cities. Only Los Angeles has a TDV-based marginal price 

equal to the price derived from the default tariff. 

These data show that, TOU-based and TDV-based marginal prices are not significantly 

different, and in fact lower, than the marginal prices derived from default tariffs. Therefore, DOE 

determined that they would not have a significant effect on the economic justification of morestringent efficiency standards. 
8-G-6

Figure 8-G.3.1 Comparison of the effective marginal price for hot-dry region

Figure 8-G.3.2 Effective default, TOU, and TDV marginal prices for hot-dry 

cities

0

2

4

6

8

10

12

14

16

18

20

0 5 10 15 20

Default price cents/kWh

TOU price or TDV price cents/kWh

TOU y=x TDV

0

5

10

15

20

Albuquerque Las_Vegas Phoenix Tucson Fresno Los_Angeles Sacramento San_Francisco

Census Division

Price cents/kWh

July default July TOU July TDV
8-G-7

REFERENCES

 1 FERC. Assessment of Demand Response and Advanced Metering. Staff Report, Federal 

Energy Regulatory Commission, December 2008. Available at: 

http://www.ferc.gov/legal/staff-reports/12-08-demand-response.pdf. 

2 EIA. Energy Information Agency Annual Electric Power Industry Database Form 861, 

2007. Available at: http://www.eia.doe.gov/cneaf/electricity/page/eia861.html.

3 U. S. Department of Energy, EnergyPlus Energy Simulation Software. Available at: 

http://apps1.eere.energy.gov/buildings/energyplus/. 

4 California Energy Commission, Time-Dependent Valuation (TDV). Available at: 

http://www.energy.ca.gov/title24/2005standards/archive/rulemaking/documents/tdv/index.ht

ml.