Marginal-cost pricing for energy: but how

Journal Article · Thu Dec 07 04:00:00 EST 1978 · Public Util. Fortn.; (United States)

OSTI ID:6178501

Pierce, Jr, R J

The difficulties of implementing a pricing system--for utilities engaged in providing energy in usable forms for the public--based on incremental, or marginal costs, are discussed. Demonstrating the need to incorporate marginal-cost principles in energy prices is the easiest step in the process of changing methods of controlling prices. The much-more-difficult problems are measuring marginal-cost pricing which is consistent with the apparent political goal of constraining the revenues of energy suppliers. The author identifies and distinguishes three separate approaches to the problem and appraises the prospects for the successful use of each. The most-frequently proposed method of implementing marginal-cost principles in setting energy prices is simply to distinguish between groups of consumers based on differences in price elasticity of demand. A second method of implementing marginal-cost pricing of energy being proposed in recent years is the inclining block rate. The easist way to reflect marginal-cost principles in energy prices is simply to base the price of all units of energy to all consumers on marginal cost and to accommodate the revenue constraint by taxing away the difference between the revenues actually earned through marginal-cost pricing and the revenues which the state or Federal regulatory agency decides to allow supplier. The only significant disadvantage of the pure marginal-cost pricing/excess profits tax approach is its potential effect on measured inflation. (MCW)

• Research Organization: Univ. of Kansas, Lawrence
• OSTI ID: 6178501
• Journal Information: Public Util. Fortn.; (United States), Journal Name: Public Util. Fortn.; (United States) Vol. 102:12; ISSN PUFNA
• Country of Publication: United States
• Language: English

Related Subjects

29 ENERGY PLANNING, POLICY, AND ECONOMY
290200* -- Energy Planning & Policy-- Economics & Sociology
CHARGES
CONSUMER PROTECTION
DECISION MAKING
DEMAND FACTORS
ECONOMIC ELASTICITY
EDUCATION
EFFICIENCY
IMPLEMENTATION
INDUSTRY
MARGINAL-COST PRICING
NATURAL GAS INDUSTRY
PETROLEUM INDUSTRY
PROFITS
PUBLIC UTILITIES
RATE STRUCTURE
TAXES