Institutional Affiliation: University of Alberta
|The Electric Gini: Income Redistribution through Energy Prices|
with : w26385
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 ...