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CONSUMPTION UNDER NOISY PRICE SIGNALS: A STUDY OF ELECTRICITY RETAIL RATE DEREGULATION IN SAN DIEGO *
Author(s) -
BUSHNELL JAMES B.,
MANSUR ERIN T.
Publication year - 2005
Publication title -
the journal of industrial economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.93
H-Index - 77
eISSN - 1467-6451
pISSN - 0022-1821
DOI - 10.1111/j.1467-6451.2005.00267.x
Subject(s) - lagging , deregulation , consumption (sociology) , economics , electricity , electricity price , agricultural economics , demand response , monetary economics , commerce , microeconomics , macroeconomics , engineering , medicine , social science , pathology , sociology , electrical engineering
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.