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Energy Demand with Declining Rate Schedules: An Econometric Model for the U.S. Commercial Sector

We specify and estimate a model of the demand for electricity and natural gas in commercial buildings using data from the Commercial Building Energy Consumption Survey. Although not observed, declining rate schedules are approximated by a downward sloping function fitted to billing data for individual survey units. Marginal prices (rates), 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. (JEL Q41)