Essays in the Economics of Electricity Consumption

Abstract

This dissertation explores the economics of electricity consumption in three essays.

Many electric utilities in the United States have replaced flat pricing schedules with increasing block prices (IBPs) to decrease aggregate electricity use without imposing costs on low-income households. Under IBPs, the price per kilowatt-hour increases as electricity use increases. It is not clear, however, whether IBPs decrease aggregate energy use and protect low-income households. I use monthly billing records and demographic data to estimate price elasticities of energy demand by income. I use these elasticities to show that IBPs in California increase total electricity use relative to a revenue-neutral flat price. Finally, I find that IBPs decrease electricity bills for low-income households.

A number of policies and programs are aimed at reducing energy use in buildings—building energy codes, disclosure laws, energy-use benchmarking, and mandated or subsidized energy audits. In the United States, many of these initiatives are enacted at the state or local level. At the federal level, one of the main programs is EnergyStar certification, which provides a label to top energy-performing buildings. In this paper, we evaluate changes in rents and utility expenditures following Energy Star certification using a national sample of over 4,400 office buildings combined with Energy Star data from the US Environmental Protection Agency (EPA). We find that building rents increase by 3.7 percent following certification, but that utility expenditures remain unchanged. We provide novel evidence that buildings do not make upgrades or capital investments to obtain a certification, suggesting that the Energy Star program primarily certifies buildings that are already energy-efficient.

In this paper, we study how households living on US military bases responded to the introduction, and subsequent removal, of residential electricity prices. From2006 through March 2019, tenants on military bases only paid for electricity use beyond a monthly allocation that varied by their housing type. For any use below that allocation, they received a rebate. The pricing schedule also included a “donut” around the allocation where electricity was free, generating large incentives for the households to change their electricity use in response to the nonlinear electricity price. After March 2019 all electricity for these households unexpectedly became free, providing us with the unique opportunity to evaluate how households responded to their pricing schedule. Under three alternative empirical approaches, we find that 39.64 percent more households to 3.41 percent more households located near that nonlinearity in their pricing schedule. These estimates correspond to price elasticities of electricity demand that range from -0.12 to -1.44, suggesting that households respond to more than just the nonlinear incentives in their electricity pricing schedule.