Electricity Pricing to U.S. Manufacturing Plants, 1963-2000
Steven J. Davis
University of Chicago; National Bureau of Economic Research (NBER)
U.S. Census Bureau - Center for Economic Studies
University of Maryland - Department of Economics; National Bureau of Economic Research (NBER); Institute for the Study of Labor (IZA)
U.S. Bureau of Economic Analysis (BEA)
October 1, 2007
US Census Bureau Center for Economic Studies Paper No. CES 07-28
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.
Number of Pages in PDF File: 63working papers series
Date posted: November 11, 2007 ; Last revised: April 30, 2013
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