Price Elasticity and Beyond: The Determinants of Residential Electricity Consumption in New York

Abstract

The price elasticity of electricity demand has been the focus of an important literature, because of the potential impact it has on energy and economic policy. We contribute to it by looking at the state of New York case in an innovative way. We construct a three-dimensional (utility × county × year) panel dataset of electricity sales to residential consumers from 21 electric utilities in all 62 counties of state of New York over the years of 1994 to 2013 to estimate the price elasticity of residential electricity average demand (per household). Such data enables us to account for differences within a large jurisdiction, without having to rely on household-level data, which are difficult to obtain, especially over different years. We find that the short-run and intermediate-run price elasticity of demand are respectively in the vicinity of -0.04 and -0.07 and that the long-run elasticity is around -0.60. We also investigate how the price elasticity varies in different contexts, as described by time period, price level, income level, weather indicators, and other variables. We find that once we take into account the heterogeneity of contexts, the multiplicity of significant price elasticities of demand make it difficult to have a valid, global, interpretation of the impact of a price change upon households. There is such an heterogeneity of price elasticities across the different contexts that one should be cautious on its use for policy, as a single value may not represent any consumer at all.

Keywords: Electricity Demand, Price Elasticity, Panel Data Estimation, New York State

JEL Classification: C23, L52, Q41, Q58