Household Electricity Demand, Revisited

Abstract

Recent efforts to restructure and partially deregulate electricity markets have renewed interest in understanding how consumers respond to price changes. Several interrelated problems complicate demand analyses of these markets, including nonlinear pricing, heterogeneity in households' price sensitivities, and data aggregation. This paper formulates a model of household electricity demand that addresses these difficulties. We estimate the model using data for a representative sample of California households, and summarize how electricity demand elasticities vary in that state. We then use the model to analyze the electricity consumption and expenditure effects of recent tariff structure changes in California.