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New From Berkeley

Posted in California,Papers,Retail by Cheryl Morgan on the November 17th, 2008

There is another new paper out from the Center for the Study of Energy Markets at UC Berkeley. This one, titled “Equity Effects of Increasing-Block Electricity Pricing”, is by Severin Borenstein, and it looks at how successful the California government has been in designing a tariff system that will help the poor. Here’s the abstract:

Utility regulators frequently attempt to use tariff structures to pursue both distributional and efficiency goals. Efficiency necessitates setting prices as close to marginal costs as possible while still allowing the firm to cover its costs. The common distributional goal is to protect low-income customers from high prices. Perhaps nowhere is the conflict between these goals greater than in the use of increasing-block residential utility pricing, in which the marginal price to the customer increases as the customer’s usage rises. Since the 2000-01 California electricity crisis, the state has adopted some of the most steeply increasing-block tariffs in electric utility history, but the distributional and efficiency effects have not been analyzed in detail. Using a novel approach for matching customer bill data with census data on area income distributions, I derive estimates of the income redistribution effected by the increasing-block tariffs used by California regulated electric utilities. I find that the rate structure does redistribute income to lower-income groups, but that the effect is fairly modest, particularly compared to a means-tested program also in use. While the distributional impact of these tariffs do not seem to be large, the efficiency costs may not be great either. Examining the distribution of customer demand quantities, I find preliminary evidence that customers do not respond to the increasing marginal prices they face.

You can read the full paper here, but if academic rigor is a bit much for you CSEM also publishes their Research Review magazine that explains recent papers in plain language. The latest issue has just been published. In addition to the Borenstein paper, it also has articles on:

  • Time to Push Energy Conservation AND Energy Efficiency; and
  • Permits to Pollute: Insights on How to Design a Pollution Market

The magazine is available as a free download here.

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