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Does electricity competition work for residential consumers? Evidence from demand models for default and competitive residential electricity services
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Does electricity competition work for residential consumers? Evidence from demand models for default and competitive residential electricity services
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Journal Article
Does electricity competition work for residential consumers? Evidence from demand models for default and competitive residential electricity services
2020
Overview
Residential electricity competition is under investigation in a number of U.S. states due to alleged market imperfections including consumer behavior that is supposedly inconsistent with rational, economic decision-making. In this paper, I examine these issues and use a panel data of distribution utilities in Illinois during the period 2011–2017 to estimate demand models for regulated and competitive electricity services. I find that residential electricity consumers in Illinois are acting in a manner consistent with standard consumer behavior theory, with price elasticity of demand estimates that are generally in line with those in the literature, ranging between − 0.40 and − 0.60. Importantly, I find evidence that customers served by competitive suppliers are sensitive to the regulated default service price. Specifically, I find that a 1% decrease in the regulated default service price will lead to approximately 0.5% of customers served by competitive suppliers switching to the regulated default service. These findings call into question some of the underpinnings of policymakers’ critique of residential electricity competition.
Publisher
Springer Nature B.V
Subject
