Consumption under Noisy Price Signals: A Study of Electricity Retail Rate Deregulation in San Diego
University of California - Energy Institute; University of California, Berkeley - Department of Industrial Engineering & Operations Research (IEOR)
Erin T. Mansur
Tuck School of Business at Dartmouth; National Bureau of Economic Research (NBER)
Journal of Industrial Economics, Vol. 53, No. 4, pp. 493-513, December 2005
Utility services employ nonlinear tariffs that attempt to convey information on cost convexities. This paper examines how customers respond to noisy and volatile tariffs by measuring deregulated retail rates' impact on electricity consumption in San Diego. When rates doubled in 2000, consumers appear to have reacted more to recent past bills than to current price information. By summer's end, we find consumption fell 6% while lagging price increases. Even months after the utility restored low historic rates customers continued curtailing demand. We conclude that rate structures relying upon lagged wholesale price averages produce delayed responses to scarcities or high costs.
Number of Pages in PDF File: 21
Date posted: January 3, 2006