A Model of Energy Demand in the U.S. Commercial Sector with Declining Rate Schedules

A model of the demand for electricity and natural gas in commercial buildings is specified and estimated using data from the Commercial Building Energy Consumption Survey. Although not observed, declining rate schedules are allowed for by an adaptation of a method proposed by Halvorsen (1975). As well as prices, temperature variables and a large number of building characteristics are incorporated into the model as explanatory variables. Demand and rate schedule equations constitute a simultaneous system, with prices and quantities jointly determined. The effects on price elasticities of using (endogenous) marginal rather than (exogenous) average prices are estimated to be quite large.