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

63 Pages Posted: 11 Nov 2007 Last revised: 30 Apr 2013

See all articles by Steven J. Davis

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)

Multiple version iconThere are 2 versions of this paper

Date Written: October 1, 2007

Abstract

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.

Suggested Citation

Davis, Steven J. and Grim, Cheryl and Haltiwanger, John C. and Streitwieser, Mary, Electricity Pricing to U.S. Manufacturing Plants, 1963-2000 (October 1, 2007). US Census Bureau Center for Economic Studies Paper No. CES 07-28. Available at SSRN: https://ssrn.com/abstract=1028529 or http://dx.doi.org/10.2139/ssrn.1028529

Steven J. Davis

University of Chicago ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
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773-702-7312 (Phone)
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National Bureau of Economic Research (NBER)

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Cheryl Grim (Contact Author)

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)

1441 L Street NW
Washington, DC 20910
United States

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