Energy Policy 1994 22 (10) 857-866 The consumer's energy analysis environment Willett Kempton and Linda L Layne This article describes how residential energy consumers measure and analyze their own energy consumption and energy costs. Using in-depth interviews, we find more extensive data collection and analysis by residential energy consumers than has been previously documented in the energy literature. However, the conclusions con- sumers can draw from their analytical efforts are restricted by the form in which they receive price and consumption data and their limited analytic capabilities. The relative information processing strengths of consu- mers are compared with those of institutions such as energy utilities, leading to the conclusion that many of the analytic tasks are currently assigned to the less effi- cient parties, degrading decision quality and creating a market barrier to energy conservation. We suggest a more efficient allocation of data collection and analysis between the consumer and energy utility. Keywords: Energyefficiency; Consumption data; Folk analysis Efficient market functioning requires that the consumer know the prices, quantity and quality of goods - and use that information to make purchase decisions. This may be a reasonable assumption in a retail store, where the price is marked on the shelf or directly on the product itself. We will argue that retail energy purchases are very different, with price and consumption data difficult to acquire and expensive to analyze. The buyer receives energy services (light, heat etc) but is billed via the easy to meter, but irrelevant to the buyer, measure of electron flow (kWh). The cost of individual services is further obscured by the quaint practice of manual meter read- ing, which dictates temporal aggregation - monthly in most of the USA, quarterly or annually in many parts of the world. The resulting bills in kilowatt hours meet the seller's need for revenue flow but, as we will demon- Willett Kempton is with the Center for Energy and Environmental Policy, University of Delaware, Newark, DE 19716, USA; Linda L Layne is with the Department of Science and Technology Studies, Rensselaer Polytechnic Institute, Troy, NY 12180, USA. strate, poorly serve buyer decisions about consumption and efficiency investments. Given the monopolistic nature of retail electric and gas utilities, potential con- sumer data improvements are not stimulated by market competition. Regulators and consumer advocates have concentrated on rates, with rarely any consideration of how price and consumption information reaches the consumer. For readers whose familiarity with current energy billing has dulled their appreciation of its absurdity, we ask them to contemplate parallel examples. For example, telephone bills might give a single dollar fig- ure for monthly long-distance service without calls itemized (this is in fact the case in many European coun- tries). Or, consider groceries in a hypothetical store totally without price markings, billed via a monthly statement like 'US$527 for 2362 food units in April'. j How could grocery shoppers economize under such a billing regime? Prior qualitative research has shown that energy consumers encounter precisely these types of data analysis and evaluation problems. 2 Energy conserv- ers receive no report on savings from past actions, which makes evaluation of energy savings very difficult. Failure to report achieved savings removes an incentive to further conservation measures and presumably impedes the diffusion of effective methods across households) In this context, the normal economic assumption of 'perfect information' is not only inaccu- rate, but has led energy analysts to completely ignore essential components of the policy mix needed to address barriers to energy efficiency. A normal economic research paradigm would focus on the relationship of price and demand, ignoring the mechanisms by which buyers know the price and their own consumption. A few researchers, fortuitously unschooled in normal economic assumptions, have instead experimented with different means for convey- ing price and consumption information to the consumer. Two types of system would be logically desirable: a method of billing per end use rather than aggregating all energy uses in the household, and a method for report- ing the results of prior conservation efforts. 0301-4215/94/10 0857-10 © 1994 Butterworth-Heinemann Ltd 857