This study analyzes the impact of changes in monthly temperature on the monthly residential electricity demand for the capital city of Pakistan, Islamabad. This study also analyzed the households coping mechanisms against electricity shortfall along with their monetary and environmental costs to the society in Islamabad. This study used the primary data from the monthly billing data from June 2012 to May 2013, from 250 respondents from the residential sector of the urban Islamabad. To analyze the impact of monthly temperature on residential electricity demand, this study used simple linear regression model and log linear regression model. The coping mechanisms against electricity shortfall that are using in the residential sector and their respected monetary and environmental costs are analyzed through survey and the structured questionnaire. Results of the study revealed that the changes in monthly average temperature has a significant and positive impact on the changes in the monthly electricity consumption. All the correlations and elasticities are positive and significant. The coping mechanisms that the households are using against electricity shortfall are the small electricity generators, solar energy systems, uninterruptible power supply systems (UPS) and rechargeable fans. From the monetary standpoint, all of the coping mechanisms bring retail costs while generators, UPS and rechargeable fans bring also the operational costs. From environmental point of view, all the coping mechanisms impose the environmental costs in terms of CO2 emissions at the time of construction while generators impose the operational environmental costs also. It is concluded that electricity consumption increases in hot months in the residential sector and it decreases in winter with a decrease in the average atmospheric temperature. At the households level, most of the electricity is generated by small thermal generators which are bringing high monetary and environmental costs to the society. The authorities should discourage the use of generators by providing the households the required amount of electricity. New hydropower, solar power and wind power projects should be implemented. Nuclear power is also an option to minimize the gap between supply and demand for electricity Supervisor:- Dr. Rehana Siddiqui