AN ADL MODEL AN ADL MODEL FOR ELECTRICITY AND NATURAL GAS DEMAND IN COLORADO LEILA DAGHER, PHD AMERICAN UNIVERSITY OF BEIRUT

 Introduction  Literature Review  Model  Data and Methodology  Results  Conclusions OUTLINE

Primary Goal: estimate dynamic price elasticities. Secondary Goals End-use impact Price elasticity stability Correct price variable INTRODUCTION

Elasticities are used by utilities and government agencies for: Forecasting Policy making There is a renewed interest in elasticities as a result of the increased concern in energy pollution the rise in energy prices.

INTRODUCTION Capital Intensive → Huge Savings Elasticities are region specific Existing estimates for Colorado are inconsistent with economic theory Stability of estimates

Xcel Energy Service Territory

Electricity Natural Gas

LITERATURE REVIEW PRODUCTUSOTHERTOTAL ELECTRICITY NATURAL GAS TOTAL

LITERATURE REVIEW Omission of standard errors especially for the LR elasticities Wide-ranging estimates o Consumer sectors o Sample periods o Modeling variables o Level of analysis o Modeling methods and data types

ADL DEMAND MODEL

Unit-root testing Co-integration testing Multicollinearity Data were averaged and logged Deflator CO CPI Lagged prices Frequency conversion Customers variables were smoothed using an IV DATA AND METHODOLOGY

ESTIMATION ISSUES Spurious Regression Statistical Inference Price Endogeneity Inconsistent Estimates

METHODOLOGY OLS regression and choose the ARDL model that has uncorrelated errors while optimizing the SIC. T and F statistics on this model are valid

METHODOLOGY Lag selection Residual Diagnostics Saturation/efficiency indices Test for model and coefficient stability and price asymmetries Monthly bill Dynamic elasticities

RESULTS Electric Small Commercial VariableCoefficientStd. Errort-StatisticProb. C Q e (-1) Q e (-2) Q e (-3) Q e (-4) Q e (-5) P e (-1) Є LR=

RESULTS Electric Small Commercial obsQeQe SE 1994M M M M M M M M M M M M M

RESULTS Electric Small Commercial

RESULTS Summary Table Sector Price Elasticity SRLR Electric Residential (0.028) (0.075) Electric Small Commercial-0.065* (0.028)-0.103* (0.043) Electric Large Commercial (0.010) (0.011) Natural Gas Residential (0.019) (0.049) Natural Gas Small Commercial (0.021) (0.072)

SENSITIVITY ANALYSIS Data aggregation Seasonal differencing Different models Lag selection Selection criterion Sample periods

Demand is highly inelastic Surcharges for DSM or RE Customers do not respond to joint bill LR range DE useful tool for end users CONCLUSIONS & IMPLICATIONS

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