Marginal-cost versus rolled-in pricing for natural gas

Journal Article · Thu Mar 31 04:00:00 EST 1977 · Public Util. Fortn.; (United States)

OSTI ID:7293920

Tybout, R A

A restructuring of current natural gas pricing policies can be accomplished with a return to and application of basic, economically efficient marginal-cost pricing principles. The author distinguishes between marginal-cost opposed to rolled-in as pricing methods for natural gas and between another definition of rolled-in as opposed to incremental-cost pricing. Incremental-cost pricing is felt to be misnamed, which has created a great deal of confusion. Marginal-cost pricing is defined as a method of setting a price for all units of a good at the cost of the last (highest) unit produced or offered for sale at a specified time and place. Consumers are thus aware of the costs involved in an increase in demand and, conversely, the value of resources that can be saved by lowering consumption. Rolled-in prices spread the marginal cost over all units and, because prices are understated, encourages excess demand and higher social costs in that higher-cost resources are used but consumers are not charged for the true costs. Incremental-cost pricing of natural gas has been used to cover the cost of supplementary supplies needed because the underpriced base load creates a higher demand. A phased transition to marginal pricing is outlined so as to avoid disruptions. One approach is a declining commodity tax based on the difference in revenue received during a windfall compared to a base period and would tax fixed volumes of output without constraining expansion of output. Another approach is a tax on land values of privately owned producing wells with an equal share from publicly owned wells to standardize land evaluation. (DCK)

• Research Organization: Ohio State Univ., Columbus
• OSTI ID: 7293920
• Journal Information: Public Util. Fortn.; (United States), Journal Name: Public Util. Fortn.; (United States) Vol. 99:7; ISSN PUFNA
• Country of Publication: United States
• Language: English

Related Subjects

03 NATURAL GAS
030600 -- Natural Gas-- Economic
Industrial
& Business Aspects
29 ENERGY PLANNING, POLICY, AND ECONOMY
290200 -- Energy Planning & Policy-- Economics & Sociology
294003* -- Energy Planning & Policy-- Natural Gas
CAPITAL
CHARGES
DEMAND FACTORS
ECONOMIC IMPACT
ECONOMICS
ENERGY POLICY
ENERGY SOURCES
FLUIDS
FOSSIL FUELS
FUEL GAS
FUELS
GAS FUELS
GASES
GOVERNMENT POLICIES
INCOME
INVESTMENT
NATURAL GAS
PRODUCTION
PUBLIC LANDS
SOCIAL IMPACT
TAXES