The Equity and Efficiency of Two-Part Tariffs in U.S. Natural Gas Markets
Residential natural gas customers in the United States face volumetric charges that average about 30 percent more than the marginal cost of gas. This inefficient departure from marginal cost pricing allows gas utilities to cover their fixed infrastructure and operating costs. Proposals for recovering these costs instead through fixed monthly fees are often opposed because of a widespread belief that current rate schedules have desirable distributional consequences. Using nationally representative household-level data, we show that the correlation between household income and natural gas consumption is indeed positive but surprisingly weak, so current rate schedules are only mildly progressive. In part, we argue that this is because poor households tend to have larger families and less energy-efficient homes. We calculate bill impacts under a variety of scenarios and show that even a modest energy assistance program would more than offset the distributional impact of tariff rebalancing for most low-income households.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Severin Borenstein & Meghan R. Busse & Ryan Kellogg, 2012. "Career Concerns, Inaction and Market Inefficiency: Evidence From Utility Regulation," Journal of Industrial Economics, Wiley Blackwell, vol. 60(2), pages 220-248, 06.
- Snow, Arthur & Warren, Ronald Jr., 1996. "The marginal welfare cost of public funds: Theory and estimates," Journal of Public Economics, Elsevier, vol. 61(2), pages 289-305, August.
- Daniel Feenberg & Elisabeth Coutts, 1993. "An introduction to the TAXSIM model," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 12(1), pages 189-194.
- 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.
- Severin Borenstein, 2010. "The Redistributional Impact of Non-linear Electricity Pricing," NBER Working Papers 15822, National Bureau of Economic Research, Inc.
- Jerry A. Hausman, 1979. "Individual Discount Rates and the Purchase and Utilization of Energy-Using Durables," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 33-54, Spring.
- Lucas W. Davis & Erich Muehlegger, 2010. "Do Americans consume too little natural gas? An empirical test of marginal cost pricing," RAND Journal of Economics, RAND Corporation, vol. 41(4), pages 791-810.
- Lucas W. Davis & Erich Muehlegger, 2010. "Do Americans Consume Too Little Natural Gas? An Empirical Test of Marginal Cost Pricing," NBER Working Papers 15885, National Bureau of Economic Research, Inc.
- Charles L. Ballard & Don Fullerton, 1992. "Distortionary Taxes and the Provision of Public Goods," Journal of Economic Perspectives, American Economic Association, vol. 6(3), pages 117-131, Summer.
- Charles L. Ballard & Don Fullerton, 1990. "Distortionary Taxes and the Provision of Public Goods," NBER Working Papers 3506, National Bureau of Economic Research, Inc.
- Yew-Kwang Ng & Mendel Weisser, 1974. "Optimal Pricing with a Budget Constraint—The Case of the Two-part Tariff," Review of Economic Studies, Oxford University Press, vol. 41(3), pages 337-345.
- Alan J. Auerbach & Anthony J. Pellechio, 1978. "The Two-Part Tariff and Voluntary Market Participation," The Quarterly Journal of Economics, Oxford University Press, vol. 92(4), pages 571-587.
- Severin Borenstein & Meghan Busse & Ryan Kellogg, 2007. "Principal-agent Incentives, Excess Caution, and Market Inefficiency: Evidence From Utility Regulation," NBER Working Papers 13679, National Bureau of Economic Research, Inc.
- Baumol, William J & Bradford, David F, 1970. "Optimal Departures from Marginal Cost Pricing," American Economic Review, American Economic Association, vol. 60(3), pages 265-283, June.
- Martin S. Feldstein, 1972. "Equity and Efficiency in Public Sector Pricing: The Optimal Two-Part Tariff," The Quarterly Journal of Economics, Oxford University Press, vol. 86(2), pages 175-187.
- Christopher R. Knittel, 2003. "Market Structure and the Pricing of Electricity and Natural Gas," Journal of Industrial Economics, Wiley Blackwell, vol. 51(2), pages 167-191, 06. Full references (including those not matched with items on IDEAS)