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Electricity Pricing to U.S. Manufacturing Plants, 1963-2000

  • Steven Davis
  • Cheryl Grim
  • John Haltiwanger
  • Mary Streitwieser

We 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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Paper provided by Center for Economic Studies, U.S. Census Bureau in its series Working Papers with number 07-28.

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Length: 63 pages
Date of creation: Oct 2007
Date of revision:
Handle: RePEc:cen:wpaper:07-28
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  1. Severin Borenstein, 2002. "The Trouble With Electricity Markets: Understanding California's Restructuring Disaster," Journal of Economic Perspectives, American Economic Association, vol. 16(1), pages 191-211, Winter.
  2. Johannes Van Biesebroeck, 2007. "ROBUSTNESS OF PRODUCTIVITY ESTIMATES -super-* ," Journal of Industrial Economics, Wiley Blackwell, vol. 55(3), pages 529-569, 09.
  3. Meyer, Robert A & Leland, Hayne E, 1980. "The Effectiveness of Price Regulation," The Review of Economics and Statistics, MIT Press, vol. 62(4), pages 555-66, November.
  4. Besanko, David & D'Souza, Julia & Thiagarajan, S Ramu, 2001. "The Effect of Wholesale Market Deregulation on Shareholder Wealth in the Electric Power Industry," Journal of Law and Economics, University of Chicago Press, vol. 44(1), pages 65-88, April.
  5. Wilson, Robert, 1997. "Nonlinear Pricing," OUP Catalogue, Oxford University Press, number 9780195115826, July.
  6. Severin Borenstein & Stephen P. Holland, 2003. "On the Efficiency of Competitive Electricity Markets With Time-Invariant Retail Prices," NBER Working Papers 9922, National Bureau of Economic Research, Inc.
  7. repec:oup:restud:v:51:y:1984:i:2:p:305-19 is not listed on IDEAS
  8. John Haltiwanger & C J Krizan & Lucia Foster, 1998. "Aggregate Productivity Growth: Lessons From Microeconomic Evidence," Working Papers 98-12, Center for Economic Studies, U.S. Census Bureau.
  9. Brown,Stephen J. & Sibley,David Sumner, 1986. "The Theory of Public Utility Pricing," Cambridge Books, Cambridge University Press, number 9780521314008.
  10. Paul L. Joskow & Richard Schmalensee, 1988. "Markets for Power: An Analysis of Electrical Utility Deregulation," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262600188, June.
  11. Peltzman, Sam, 1971. "Pricing in Public and Private Enterprises: Electric Utilities in the United States," Journal of Law and Economics, University of Chicago Press, vol. 14(1), pages 109-47, April.
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