EconPapers    
Economics at your fingertips  
 

The Redistributional Impact of Non-linear Electricity Pricing

Severin Borenstein ()

No 15822, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Utility regulators frequently focus as much or more on the distributional impact of electric rate structures as on their efficiency. The goal of protecting low-income consumers has become more central with recent increases in wholesale power costs and anticipation of significant costs of greenhouse gas emissions in the near future. These concerns have led to the widespread use of increasing-block pricing (IBP), under which the marginal price to the household increases as its daily or monthly usage rises. There is no cost basis for differentiating marginal price of electricity by consumption level, so perhaps nowhere is the conflict between efficiency and distributional goals greater than in the use of IBP. California has adopted some of the most steeply increasing-block tariffs in electric utility history. Combining household-level utility billing data with census data on income distribution by area, I derive estimates of the income redistribution effected by these increasing-block electricity tariffs. I find that the rate structure does redistribute income to lower-income groups, cutting the bills of households in the lowest income bracket by about 12% (about $5 per month). The effect would be about twice as large if not for the presence of another program that offers a different and lower rate structure to qualified low-income households. I find that the deadweight loss associated with IBP is likely to be large relative to the transfers. In contrast, I find that the means-tested program transfers income with much less economic inefficiency. A much larger share of the revenue redistributed by the IBP tariff, however, comes from the wealthiest quintile of households, so IBP may be a more progressive structure of redistribution. In carrying out the analysis, I also show that a common approach to studying (or controlling for) income distribution effects by using median household income within a census block group may substantially understate the potential effects.

JEL-codes: L43 L94 (search for similar items in EconPapers)
Date: 2010-03
Note: EEE IO
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7) Track citations by RSS feed

Published as Severin Borenstein, 2012. "The Redistributional Impact of Nonlinear Electricity Pricing," American Economic Journal: Economic Policy, American Economic Association, vol. 4(3), pages 56-90, August.

Downloads: (external link)
http://www.nber.org/papers/w15822.pdf (application/pdf)

Related works:
Journal Article: The Redistributional Impact of Nonlinear Electricity Pricing (2012) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:nbr:nberwo:15822

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w15822

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().

 
Page updated 2019-10-20
Handle: RePEc:nbr:nberwo:15822