There have been a few changes in the electricity market in the recent past. Market prices have been increasing significantly during some months and then decreasing a little in others. Yet, the market demand and market price are not increasing and decreasing accordingly.
In August 2002, the weather was quite hot compared to a much cooler June. This caused the demand for electricity to increase as more people were using their air conditioners which consume a lot of electricity. Assuming that the supply of electricity remained constant, there was competition for that available supply. This caused to the demand curve to shift right a little and therefore caused the price to increase from $37.10/Mwh in June to $69.41/Mwh in August. .
In September, the weather was unusually warm so many people still had their air conditioners running, which increased demand. Also, many sellers (generators) of electricity had shutdown their operations for a scheduled maintenance in September. They usually do this in September because there is usually a decrease in demand around this time because of cooler weather, but that was not the case September 2002. This shutdown for maintenance caused a decrease in supply, whereas the warm weather caused an increase in demand. Therefore, this caused a much higher price for electricity in September. The shift in the demand curve is larger than the shift in the supply curve. This must be true because the quantity demanded, as well as the price, increased from August to September.
As a result of the price freeze, people who are covered by the price freeze are using more electricity because no matter how much they use, they only pay $43.00 per month. The average extra quantity of electricity consumed per month in the short and long runs as a result of the price freeze can be calculated by multiplying the percentage change in price by the short and long run price elasticity of demand.
