CONSUMPTION UNDER NOISY PRICE SIGNALS: A STUDY OF ELECTRICITY RETAIL RATE DEREGULATION IN SAN DIEGO

Authors


  • *We thank the editor and two anonymous referees. We are also grateful to Severin Borenstein, Judy Chevalier, Paul Joskow, Alvin Klevorick, Sharon Oster, Steve Puller, Fiona Scott Morton, Celeste Saravia, Matt White, Frank Wolak, Catherine Wolfram, and particularly Leslie Willoughby of San Diego Gas and Electric for helpful comments and discussions. In addition, we are grateful for comments from presentation participants at Stanford's Energy Modeling Forum, California Public Utilities Commission and the University of California at Berkeley. Finally, Erin Mansur thanks the California Public Utilities Commission's Office of Ratepayer Advocates for financial support.

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.

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