APPENDIX 8C. COMPARISON OF MARGINAL PRICES FOR TOU AND DEFAULT
 

TARIFFS
 

TABLE OF CONTENTS
 

8C.1 INTRODUCTION ...................................................................................................8C-1
 

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

LIST OF TABLES 

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

LIST OF FIGURES 

Figure 8C.2.2 Comparison of the effective marginal price for each account. ....................8C-3 

Figure 8C.2.3 Effective marginal prices for all accounts, organized by census 

division .........................................................................................................8C-4
 

8C-i 
 

 

 

 

APPENDIX 8C. COMPARISON OF MARGINAL PRICES FOR TOU AND DEFAULT
 

TARIFFS 

8C.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. To investigate this issue, the Department conducted an analysis to 

compare prices derived from default (i.e. non-TOU) tariffs and TOU tariffs, described in this 

Appendix. The tariff data were collected as part of the Tariff Analysis Project (TAP) database 

update (see appendix 8-B). 

8C.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. 

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 

8C-1
 
 

 

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-C.2.1 and Figures 8-C.2.1 and 8-

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

C.2.1 is a scatter plot of the effective marginal price for the TOU tariff vs. the effective marginal 

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-C.2.2, which shows the 

8C-2 
 

 

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

division for this plot. Figure 8-C.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. 

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 

Figure 8C.2.2 Comparison of the effective marginal price for each account. 

8C-3
 
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 

Figure 8C.2.3 Effective marginal prices for all accounts, organized by census 

division 

8C-4
 
 

 

 

 

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/ 

8C-5