Patterns in Residential Gas and Electricity Consumption: An Econometric Analysis

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Abstract
In this article, we investigate individual consumption data of natural gas and electricity using modified multiple regression techniques. Because a subset of households have zero gas consumption, the purpose of the study is to ask two empirical questions: 1. How can we quantify potential energy conservation from increasing gas availability? 2. Is it appropriate to estimate and compare electricity demands of gas users and nonusers by the same regression function? We began our investigation based on the methodology of generalized tobit models. Our empirical results indicate that the probit equation for gas connection is exogenous to the amount of potential energy consumption. To answer question 2, we obtain heteroscedasticity-efficient estimates of the electricity-demand equations by a nearest-neighbor estimator to deal with heteroscedasticity of unknown form. The prediction of energy conservation is that electricity demand could be reduced by 2,473.57 kilowatt-hours a year per household if a gas connection is available to nonusers. To reduce electricity demand by this amount, the utility company would need to supply 611.09 Therms of natural gas.