The response of an industrial firm to alternative electricity rate structures An optimization model for simulation applications

A theoretical linear programming model of the response of an industrial firm to hypothetical time-of-use and peak demand electricity rates is presented. The firm minimizes total cost by annual, weekly, and daily production scheduling. It may also change the proportions of energy input supplied by electricity, natural gas, and oil, and in the long run it may expand or contract its plant size. Realistic values are assigned to the parameters of the model and the model is used in simulation experiments to study the effects of alternative electricity rate structures on two types of firm - a ‘light manufacturing’ firm and a ‘heavy manufacturing’ firm. It is found that under certain circumstances the introduction of hypothetical but plausible time-of-use and peak demand rate structures can have a major impact on industrial production schedules, electricity load factors, and other variables of interest.