The Electric Gini: Income Redistribution through Energy Prices

Arik Levinson () and Emilson Silva

No 26385, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Efficient electricity pricing involves two-part tariffs: a volumetric price equal to the marginal cost of producing an additional kilowatt hour (kWh) and a fixed fee to cover any remaining fixed costs. In this paper we explore how US electricity regulators depart from this simple two-part tariff to address concerns about income inequality. We first show that in theory, price setters concerned about inequality will charge lower fixed monthly fees and higher per-kWh prices, and increasing block prices to target higher users with even higher prices. Then we use a new dataset of 1,300 utilities across the US to show that these theoretical predictions are borne out in practice. Utilities whose ratepayers have more unequal incomes levy more redistributive tariffs, charging less to low users and more to high users. To quantify these comparisons, we develop a new measure of the redistributive extent of utility tariffs that we call the “electric Gini.” Utilities with higher electric Ginis (more redistributive tariffs) shift costs from households that use relatively little electricity to households that use more. But because electricity use is only loosely correlated with income, that redistribution does not meaningfully shift costs from households with low incomes to those with high incomes.

JEL-codes: Q41 Q48 (search for similar items in EconPapers)
Date: 2019-10
New Economics Papers: this item is included in nep-com, nep-ene and nep-reg
Note: EEE
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Citations: View citations in EconPapers (9)

Published as Arik Levinson & Emilson Silva, 2022. "The Electric Gini: Income Redistribution through Energy Prices," American Economic Journal: Economic Policy, vol 14(2), pages 341-365.

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Journal Article: The Electric Gini: Income Redistribution through Energy Prices (2022)
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