Household Electricity Demand, Revisited

Recent efforts to restructure electricity markets have renewed interest in assessing how consumers respond to price changes. This paper develops a model for evaluating the effects of alternative tariff designs on electricity use. The model concurrently addresses several interrelated difficulties posed by nonlinear pricing, heterogeneity in consumer price sensitivity, and consumption aggregation over appliances and time. We estimate the model using extensive data for a representative sample of 1300 California households. The results imply a strikingly skewed distribution of household electricity price elasticities in the population, with a small fraction of households accounting for most aggregate demand response. We then estimate the aggregate and distributional consequences of recent tariff structure changes in California, the consumption effects of which have been the subject of considerable debate.