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

  • Bushnell, James
  • Mansur, Erin T.

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 ratesï¾’ 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 summerï¾’s end, we find consumption fell 6% while lagging price increases. Even months after the utility restored low historic rates customers continued curtailing demand.Weconclude that rate structures relying upon lagged wholesale price averages produce delayed responses to scarcities or high costs.

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Paper provided by Iowa State University, Department of Economics in its series Staff General Research Papers with number 13142.

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Date of creation: 01 Dec 2005
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Publication status: Published in Journal of Industrial Economics, December 2005, vol. 53 no. 4, pp. 493-513
Handle: RePEc:isu:genres:13142
Contact details of provider: Postal: Iowa State University, Dept. of Economics, 260 Heady Hall, Ames, IA 50011-1070
Phone: +1 515.294.6741
Fax: +1 515.294.0221
Web page: http://www.econ.iastate.edu
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