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Time-of-Use Rates and Electricity Costs of Representative New York Dairy Farms

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Electric utilities throughout the Nation are experimenting with strategies to reduce total electricity consumption or to alter the timing of electrical power use by their customers. This report focuses on one such strategy, time-of-use (TaU) electric rates, and the likely effect of this pricing option on the New York dairy sector. The purpose of the study is to assess the change in farm electrical energy costs when power is sold to dairymen at higher rates for periods of peak power demand and at substantially lower rates for off-peak periods. This study is based on the results derived from a farm-level, computer decision model which calculates farm energy consumption by major end uses--such as milk cooling and feeding--and by time of day. The model differentiates power use on farms depending on the type of electricai equipment and the timing of its use. Results show that, in the case of the TaU rates now being implemented by Niagara Mohawk, moving from flat rates to TOU rates has only marginal effects on electric energy costs incurred by dairy farmers. For the 28 representative farm businesses considered, larger farms have the most significant cost savings under the new rate Gust over 12 percent), with smaller dairy operations approximately breaking even when electric power is purchased at Tau rates. These results also show that initial concerns over abrupt increases in power costs under new energy pricing schemes were misplaced. While power costs clearly increase during the summer and winter when rates increase to reflect peak power use, dairy farmers receive a concomitant windfall gain when purchasing power at relatively lower rates off-peak. The authors are Professor, Associate Professor, former Research Support Specialist, and former Graduate Research Assistant, respectively, in the Department of Agricultural Economics, Cornell University. This report is based on research supported by Niagara Mohawk Power Corporation.

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A.E. Res. 92-8

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1992-10

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Charles H. Dyson School of Applied Economics and Management, Cornell University

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Applied Economics

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report

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