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


Steven J. Davis


University of Chicago; National Bureau of Economic Research (NBER)

Cheryl Grim


U.S. Census Bureau - Center for Economic Studies

John Haltiwanger


University of Maryland - Department of Economics; National Bureau of Economic Research (NBER); Institute for the Study of Labor (IZA)

Mary Streitwieser


U.S. Bureau of Economic Analysis (BEA)

February 2008

NBER Working Paper No. w13778

Abstract:     
We develop a large customer-level database to study electricity pricing to U.S. manufacturing plants from 1963 to 2000. We document tremendous dispersion in price per kWh, trace that dispersion to quantity discounts and spatial differentials, estimate the role of cost factors in quantity discounts, and test whether marginal price schedules conform to marginal cost and Ramsey pricing conditions. Our cost analysis and pricing tests rely on a novel empirical approach that exploits utility-level differences in the customer size distribution to estimate how supply costs vary with purchase quantity.

The results reveal that annual supply costs per kWh fall by more than half in moving from smaller to bigger purchasers, providing a clear cost-based rationale for quantity discounts. Before the mid 1970s, marginal price and marginal cost schedules are nearly identical, in line with efficient pricing. In later years, marginal supply costs exceed marginal prices for smaller manufacturing customers by 10% or more. In contrast to a clear role for cost factors, our evidence provides no support for a standard Ramsey-pricing interpretation of quantity discounts. Spatial dispersion in retail electricity prices among states, counties and utility service territories is large and rises over time for smaller purchasers.

Number of Pages in PDF File: 57

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Date posted: February 8, 2008  

Suggested Citation

Davis, Steven J. and Grim, Cheryl and Haltiwanger, John and Streitwieser, Mary, Electricity Pricing to U.S. Manufacturing Plants, 1963-2000 (February 2008). NBER Working Paper No. w13778. Available at SSRN: http://ssrn.com/abstract=1091413

Contact Information

Steven J. Davis (Contact Author)
University of Chicago ( email )
5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
773-702-7312 (Phone)
773-702-0458 (Fax)
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Cheryl Grim
U.S. Census Bureau - Center for Economic Studies ( email )
Suitland Federal Center
Washington, DC 20233
United States
John C. Haltiwanger
University of Maryland - Department of Economics ( email )
College Park, MD 20742
United States
301-405-3504 (Phone)
301-405-3542 (Fax)
National Bureau of Economic Research (NBER) ( email )
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Institute for the Study of Labor (IZA) ( email )
P.O. Box 7240
Bonn, D-53072
Germany
Mary Streitwieser
U.S. Bureau of Economic Analysis (BEA) ( email )
1441 L Street NW
Washington, DC 20910
United States
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