JSM 2011 Online Program

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Abstract Details

Activity Number: 360
Type: Contributed
Date/Time: Tuesday, August 2, 2011 : 10:30 AM to 12:20 PM
Sponsor: Business and Economic Statistics Section
Abstract - #301271
Title: Using Repeated Measures to Estimate Elasticities of Demand for Retail Electricity in the State of Michigan
Author(s): Michael Taylor*+
Companies: ITC Holdings Corporation
Address: 27175 Energy Way, Novi, MI, 48377,
Keywords: Energy Price Elasticity ; Utility Economics ; Weather Sensitivity of Energy Demand ; Electrical Demand ; Price Elasticity of Demand
Abstract:

In forecasting retail electrical sales, the estimation of elasticity of demand, particularly with respect to price, has long been a source of controversy among utilities and regulators. Using a log-log, mixed effect model, we derive significant estimates for elasticity of demand with respect to price, weather and economics. These are treated as fixed effects, where a 'subject' (electric utility) variable is entered as a random effect, controlling for the homogeneity within subjects (i.e. annual consumption per customer for a given utility). The model was fit on a sample of Michigan electrical utilities over the period 2002-2007. Our price elasticity estimates showed that the larger the consumption profile of a retail customer class, the more sensitive their consumption was to price movements. This modeling approach could be applied to a variety of contexts where a seller of a product sells a similar product to similar sets of customers repeatedly, and wishes to analyze the sensitivity of their consumption with respect to a set of covariates. Examples would include energy, foodstuffs, sports/entertainment tickets, charitable contributions and rental rates of real property.


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