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

James B. Bushnell and Erin T. Mansur

Journal of Industrial Economics, Volume 53, Issue 4, December 2005, pages 493-513.
Working Paper, November 2004.
SSRN abstract number 870633, December 2005.
Previously titled: “The Impact of Retail Rate Deregulation on Electricity Consumption in San Diego”
UC Energy Institute POWER Working Paper-082, April 2001, Revised July 2003.

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.