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Department of Economics, Georgetown University
Most electric utilities in the United States charge two-part tariffs to residential customers: fixed monthly fees insufficient to cover the fixed costs of power plants and transmission lines, and per-kWh volumetric prices in excess of the marginal cost of providing electricity. And more and more utilities charge increasing block prices, higher prices to ratepayers that use more electricity. One obvious reason is equity. We first show that in theory, price setters concerned about inequality will charge lower-than-efficient fixed monthly fees and higher-than-efficient per-kWh prices, and will target higher users with even higher prices. Then we use a new dataset of more than 1300 utilities across the US to show that these theoretical predictions are borne out in practice. Utilities whose ratepayers have more unequal incomes have more redistributive electricity pricing schemes, charging less to low users and more to high users. Utilities with more ratepayers who vote Democratic, with higher costs, and with higher fractions of commercial or industrial customers have more redistributive residential pricing. To quantify these comparisons, we develop a new measure of the redistributive extent of utility pricing that we call the "electric Gini."
Arik Levinson is a Professor in the Economics Department of Georgetown University and a Faculty Research Fellow at the National Bureau of Economic Research. He has served as a Senior Economist on President Obama's Council of Economic Advisers, as a member of the U.S. Environmental Protection Agency's Science Advisory Board, and as a co-editor of the Journal of Environmental Economics and Management and the Journal of the Association of Environmental and Resource Economists. Arik's current research projects include a calculation of how the environmental consequences of American consumers' choices have differed across income groups over time; a comparison of energy taxes and efficiency standards; and an analysis of the redistributive consequences of electricity pricing.