The Demand for Electricity and Natural Gas in the Northeastern United States

Abstract

The demand for natural gas and electricity for the residential, commercial and industrial sectors was estimated using a combination of the error-components model and seemingly unrelated regressions. The estimated demand models showed both natural gas and electricity to be price-elastic in the long run and price-inelastic in the short run in all sectors except the commercial sector in which electricity demand is unresponsive to its own price. Natural gas had negligible income elasticities in the residential and commercial sectors, and a long-run income elasticity of 2.86 in the industrial sector. Electricity had an insignificant income effect in all sectors but the industrial, where its long-run elasticity was unitary. Only in the residential demand for natural gas is the cross price elasticity substantial with the price of electricity having a long-run cross elasticity of 1.70. Fuel oil prices generally had a negative impact probably indicating a large income effect. The elasticities of adjustment were higher for natural gas than electricity, indicating a faster adjustment to change, either in response to greater instability in energy availability or reflecting more alternative fuels or both. 16 references, 4 tables.