Demand and Pricing in Electricity Markets: Evidence from San Diego During California's Energy Crisis

We study the electricity consumption of San Diego-area households following a series of price changes and related events during California's energy crisis in 2000-01. The analysis uses a five-year panel of disaggregate billing and weather data for a random sample of 70,000 households. In contrast to prior work, these data allow us to proceed without behavioral assumptions regarding a consumer's knowledge of energy prices. We find that after a rapid price increase in summer 2000, consumption fell substantially over about 60 days, averaging 12% per household; consumption then rebounded to within 3% of pre-crisis levels after a price cap was imposed. Under the price cap public appeals for energy conservation and a remunerative voluntary conservation program had significant, but transitory, effects. Further, a large share of households reduced electricity consumption substantially (over 10%) but saved small monetary amounts ($10 or less). Overall, the results indicate consumers may be far more responsive to pecuniary and non-pecuniary incentives for altering their energy use than is commonly believed.

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