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Statistically Speaking: Lessons from an Electricity Crisis

by Bill Chameides | November 7th, 2008
posted by Erica Rowell (Editor)

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Conventional thinking has it that folks don’t react quickly to changes when it comes to electricity, unlike other goods and services. However, a new study of the San Diego area (2001-2002) finds that consumer response may be quite nimble.

Do people change the amount of energy they use when prices rise? In May 2008 Americans drove 10 billion fewer miles than in May 2007 — a trend, sustained between November 2007 and August 2008, suggesting that drivers do drive less [pdf] when faced with higher gas prices. But what about electricity use? California’s 2000-2001 electricity crisis provides some insight.

First some context. The setting is California, 2000. Think deregulation and Enron and an electricity market about to explode. In June Californians witnessed a price shock in their electricity rates. By mid-August average prices in San Diego had climbed to $0.23/kilowatt-hour (kWh) — more than double the pre-crisis price. That September the state government imposed a price cap and offered a rebate program to help cushion the summer’s high electric bills. With the price capped and electricity still in short supply going into 2001, the state government launched a public awareness campaign and new rebate program to urge conservation.

So how did residents in the San Diego area respond? Here are the numbers.

Consumer prices

Before electricity crisis: $0.10/kWh
At the peak of the crisis (mid-August to early September 2000): $0.23/kWh
Price imposed by government cap (September 6, 2000): $0.14/kWh

Change in electricity consumption relative to use before price shock

During height of electricity crisis: -13%*
After price cap set: -4%
After public conservation campaign began February 2001: -10%
After rebate program kicked off in June 2001: -15%
After market stabilized in November 2001: -7%

 

Note

* A drop in usage of this magnitude requires substantial changes in behavior and/or replacement of older appliances with energy-efficient ones. For example, a 10 percent drop in electricity use is equal to using a clothes dryer, stove and oven, dishwasher and TV half of the time as well as cutting home lighting by one third.

Source

Peter C. Reiss and Matthew W. White, “What Changes Energy Consumption? Prices and Public Pressures,” The RAND Journal of Economics, Vol. 39, No. 3, pp. 636-663 – www3.interscience.wiley.com/journal/121410498/abstract

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