Long-run elasticities, while difficult to empirically estimate, are critical inputs for welfare analysis, demand forecasting, and policy evaluation. In this paper, I leverage a novel source of exogenous and persistent price variation to estimate the long-run price elasticity of demand for residential electricity consumers. I find that consumers are much more responsive to prices in the long run than the short run, with a long-run elasticity estimate of -2.4, in contrast with a short-run elasticity estimate of -0.36. Low-income consumers are particularly responsive to prices in the long run, emphasizing the importance of bill salience to low-income households. I explore some of the mechanisms driving this price response, and find that households facing higher prices are less responsive to temperature than those facing low prices. My findings highlight the importance of getting electricity prices right, and suggest that retail electricity prices might play a more significant role than previously thought in determining the pace of energy transitions to cleaner technologies.

In electricity markets, generators are rewarded both for providing energy and for enabling grid reliability. The two functions are compensated with two separate payments: energy market payments and ancillary services market payments. We provide evidence of changes in the generation mix in the energy market that are driven by exogenous changes in an ancillary services market. We provide a theoretical framework and quasi-experimental evidence for understanding the mechanism, showing that it results from the multi-product nature of power plants combined with discontinuities in costs. Although research in economics typically focuses solely on the energy market, our results suggest that spillovers between markets are important as well. Furthermore, policy changes relating to grid operations, grid reliability, or climate change could have unintended effects.