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Consumption under Noisy Price Signals: A Study of Electricity Retail Rate Deregulation in San Diego

21 Pages Posted: 3 Jan 2006  

James Bushnell

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)

Abstract

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.

Suggested Citation

Bushnell, James and Mansur, Erin T., Consumption under Noisy Price Signals: A Study of Electricity Retail Rate Deregulation in San Diego. Journal of Industrial Economics, Vol. 53, No. 4, pp. 493-513, December 2005. Available at SSRN: https://ssrn.com/abstract=870633 or http://dx.doi.org/10.1111/j.1467-6451.2005.00267.x

James B. Bushnell (Contact Author)

University of California - Energy Institute ( email )

Berkeley, CA 94720
United States

University of California, Berkeley - Department of Industrial Engineering & Operations Research (IEOR)

IEOR Department
4135 Etcheverry Hall
Berkeley, CA 94720
United States

Erin T. Mansur

Tuck School of Business at Dartmouth ( email )

Hanover, NH 03755
United States
603 646 2398 (Phone)

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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