The Efficiency and Equity Consequences of Two-Part Tariffs in Electricity Pricing

Assessing the Energy-Efficiency Gap

“…Natural gas customers in the United States face prices inclusive of fixed distribution costs that are well above marginal cost, with one study estimating that these additional costs are comparable to a tax of over $50 per ton of carbon dioxide (Davis and Muehlegger 2010). Pricing above short-run marginal cost is also present in the electricity sector (Naughton 1986;Borenstein 2012). Equity considerations are one explanation for these markups in regulated industries (Borenstein and Davis 2012), but this issue is not restricted to regulated firms; utilities in restructured markets facing imperfect retail competition also diverge from optimal two-part tariffs (Puller and West 2013).…”

Estimating welfare changes from efficient pricing in public bus transit in India

“…The subsidy and equity considerations are then described by comparing the prices to marginal costs, and evaluating the impact on public bus transit demand, consumer surplus, and profits (Naughton (1986)). In the present research, estimates for user costs and external costs are not available and only production costs for firms that have been estimated.…”

“…As noted earlier, the focus of the pricing regimes in this section is on the public bus transit firms in a partial equilibrium framework following Naughton (1986) and Garcia and Reynaud 6 Refer to for a detailed derivation.…”

Do Americans Consume Too Little Natural Gas? An Empirical Test of Marginal Cost Pricing

“…Residential customers pay a large fraction of total revenue, but they also, therefore, impose a large fraction of total costs and with the available evidence it is difficult to make strong statements about the net burden borne by different customer classes. 13 12 In related work, Naughton (1982) tests the efficiency of price schedules for a sample of electric utilities in 1980. After estimating marginal costs using a translog cost function, Naughton finds that the per-unit prices faced by all customer classes exceed marginal costs.…”

“…20 Natural gas combustion releases .09 pounds of nitrogen oxides and .007 pounds of particulates per McF. 21 Using estimates from Muller and Mendelsohn 19 In related work, Buchanan (1969), Barnett (1980), and Oates and Strassman (1984) consider Pigouvian taxes in the context of an unregulated monopoly. 20 There may also be negative externalities from emerging forms of natural gas production.…”