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This study investigates the short-run dynamics and long-run equilibrium relationship between residential electricity demand and factors influencing demand – per capita income, price of electricity, price of kerosene oil and price of liquefied petroleum gas – using annual data for Sri Lanka for the period, 1960–2007. The study uses unit root, cointegration and error-correction models. The long-run demand elasticities of income, own price and price of kerosene oil (substitute) were estimated to be 0.78, −0.62, and 0.14 respectively. The short-run elasticities for the same variables were estimated to be 0.32, −0.16 and 0.10 respectively. Liquefied petroleum (LP) gas is a substitute for electricity only in the short-run with an elasticity of 0.09. The main findings of the paper support the following (1) increasing the price of electricity is not the most effective tool to reduce electricity consumption (2) existing subsidies on electricity …