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

57 Pages Posted: 8 Feb 2008 Last revised: 26 Aug 2010

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: February 2008

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.

Suggested Citation

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

Steven J. Davis (Contact Author)

University of Chicago ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
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773-702-7312 (Phone)
773-702-0458 (Fax)

National Bureau of Economic Research (NBER)

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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)

1441 L Street NW
Washington, DC 20910
United States

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