Electricity Pricing to U.S. Manufacturing Plants, 1963-2000
AbstractWe construct a large customer-level database and use it to study electricity pricing patterns from 1963 to 2000. The data show tremendous cross-sectional dispersion in the electricity prices paid by manufacturing plants, reflecting spatial price differences and quantity discounts. Price dispersion declined sharply between 1967 and 1977 because of erosion in quantity discounts. To estimate the role of cost factors and markups in quantity discounts, we exploit differences among utilities in the purchases distribution of their customers. The estimation results reveal that supply costs per watt-hour decline by more than half over the range of customer-level purchases in the data, regardless of time period. Prior to the mid 1970s, marginal price and marginal cost schedules with respect to annual purchase quantity are remarkably similar, in line with efficient pricing. In later years, marginal supply costs exceed marginal prices for smaller manufacturing customers by 10% or more. The evidence provides no support for a standard Ramsey-pricing interpretation of quantity discounts on the margin we study. Spatial dispersion in retail electricity prices among states, counties and utility service territories is large, rises over time for smaller purchasers, and does not diminish as wholesale power markets expand in the 1990s.
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Bibliographic InfoPaper provided by Center for Economic Studies, U.S. Census Bureau in its series Working Papers with number 07-28.
Length: 63 pages
Date of creation: Oct 2007
Date of revision:
electricity pricing and supply costs; quantity discounts; Ramsey pricing; spatial price dispersion;
Other versions of this item:
- Steven J. Davis & Cheryl Grim & John Haltiwanger & Mary Streitwieser, 2008. "Electricity Pricing to U.S. Manufacturing Plants, 1963-2000," NBER Working Papers 13778, National Bureau of Economic Research, Inc.
- L60 - Industrial Organization - - Industry Studies: Manufacturing - - - General
- L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities
- Q40 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - General
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