Estimating Marginal Residential Energy Prices in the Analysis of Proposed Appliance Energy Efficiency Standards

Stuart Chaitkin, James E. McMahon, Camilla Dunham Whitehead, Robert Van Buskirk, and Jim Lutz, Lawrence Berkeley National Laboratory

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Abstract

Consumer energy savings resulting from energy efficiency improvements should theoretically be valued using marginal, rather than average, energy prices. Only average energy prices have been used in past analyses. Lawrence Berkeley National Laboratory (LBNL) presents a method that estimates marginal energy prices for residential electricity and natural gas. The method calculates the regression line relating monthly energy costs and consumption for electricity and natural gas using billing data from Energy Information Administration’s (EIA) 1997 Residential Energy Conservation Survey (RECS). The slope of the regression line for each household is an estimate of that household’s marginal price, for the season covered by the billing data. National mean marginal electricity prices are 2.5% less than average electricity prices in the summer and 10.0% less than average in the nonsummer months. For natural gas, marginal prices are 4.4% less than average prices in the winter and 15.3% less than average prices in the non-winter months. The differences between the seasonal marginal prices for each fuel are statistically significant for approximately onehalf of the households in the RECS sample. For individual households, the relationship between marginal prices and average prices varies widely. Using a representative national distribution of marginal energy prices, estimated from individual household energy bills, in the life-cycle cost (LCC) analyses of proposed appliance energy efficiency standards in the residential sector will provide improved estimates of actual consumer economics. We outline limitations of the method and recommendations for further research on the estimation and use of marginal prices in the future.