Industrial Electricity Demand and the Hopkinson Rate: An Application of the Extreme Value Distribution

The Hopkinson rate is the most common method of pricing electricity for industrial use. It consists of an "energy charge" for total kilowatt hour consumption plus an additional "demand charge" based on the maximum usage by the plan during any quarter-hour period during the month. Despite this tariff's apparent drawbacks, it can have useful properties in the pricing of demand variance so that a combination of the Hopkinson rate and time-of-use pricing may be desirable. The extreme value distribution is used to simplify this analysis and also as part of an econometric analysis of the effect of the Hopkinson rate on the peak demands of a sample of eight Ontario pulp and paper mills between 1970 and 1977.