Understanding the dynamic relationship between electricity prices and consumer demand is critical for utilities, regulators, and governments seeking to deliver affordable, reliable, and efficient energy. This paper presents updated estimates of a standard measure of price responsiveness in the US residential electricity market—the price elasticity of demand for electricity (PEDE)—and explores how it varies across states.
We find that residential electricity demand is relatively inelastic on average: a 10% price increase is associated with only a 1.3% decrease in consumption. However, there is substantial variation in the PEDE across states, even among states in the same region or electric power market. This variation suggests that differences in state-level policy decisions, such as the presence or absence of retail choice, alternative rate structures, and the degree of price transparency, may also shape estimates of the PEDE. Thus, understanding the competitive environment and governance structures within states is an important component of explaining differences in price responsiveness and assessing how well markets deliver affordable power to consumers.
