Bushnell, James; Mansur, Erin T.

Journal of Industrial Economics Vol. 53 no. 4 (December 2005): 493-513.

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ﾒ 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ﾒs end, we find consumption fell 6% while lagging price increases. Even months after the utility restored low historic rates customers continued curtailing demand.Weconclude that rate structures relying upon lagged wholesale price averages produce delayed responses to scarcities or high costs.