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Stabilizing California's Demand

The real reasons behind the state’s energy savings.

Fortnightly Magazine - March 2009
Figure 2

highly with changes in per capita electricity consumption. Even when many outliers were excluded, simple linear regression showed that the relationship between these two variables was less than 20 percent. In addition, the EE savings variable was not significant within any of the multiple regression models. A major issue we encountered was that on a per capita basis, annual changes in the level of EE savings, were small in relation to the changes in annual electricity consumption. While fully controlling for all other factors that contribute to annual fluctuations in the level of electricity consumption may have allowed us to identify the role of EE savings, we were able to control only for about half of the annual variation in consumption and did not succeed in specifying the role of EE savings. 6

While we have no doubt that EE programs have contributed to the relatively stable 7 pattern of per capita electricity consumption in California, we were interested to see whether there were other factors that distinguish California from the rest of the country that also should be taken into account when explaining the divergence in consumption. We found that California is different from the rest of the United States in several other aspects ( i.e., in addition to the scope of its EE programs) that could help account for some of the difference in consumption trends. These are: the price of residential electricity; climate; household size; housing mix; conservation ethic; and the structure of the economy.

In addition to savings from EE programs, building codes and appliance standards could help account for the different consumption trends evident in California and the rest of the United States over the past 30 years.

Figure 3

Electricity Prices: In California, as elsewhere, there is a predictable relationship between electricity prices and the annual variation in residential per capita electricity consumption. On an annual basis, increases in the price of residential electricity are associated with decreases in consumption (see Figure 3) . For every one mil increase in the price of residential electricity in California, per capita consumption declines by about 6 kWh per capita. 8 The data points lie relatively well clustered about the line, with price changes explaining about 40 percent of the annual variability in per capita consumption. These findings are in keeping with the national data on residential energy prices and residential per capita consumption that we analyzed: Those states with higher energy prices have lower per capita consumption and vice versa (see Figure 4) .9

Electricity prices in California are higher than those in the United States as a whole, and the difference in price has become more marked over the past thirty-five years. In 1970, the price of residential electricity in California was 0.0809 cents per kWh, only a little higher than the U.S. average of 0.0806 cents/kWh. By 2005, the price had risen by 37 percent in California, to 0.1109 cents/kWh. In the United States as a whole, however, it had risen by just 4 percent, with the 2005 price, at 0.0838 cents/kWh, substantially lower than in