TY - JOUR AU - Davis,Steven J. AU - Grim,Cheryl AU - Haltiwanger,John AU - Streitwieser,Mary TI - Electricity Pricing to U.S. Manufacturing Plants, 1963-2000 JF - National Bureau of Economic Research Working Paper Series VL - No. 13778 PY - 2008 Y2 - February 2008 UR - http://www.nber.org/papers/w13778 L1 - http://www.nber.org/papers/w13778.pdf N1 - Author contact info: Steven J. Davis Booth School of Business The University of Chicago 5807 South Woodlawn Avenue Chicago, IL 60637 Tel: 773/702-7312 Fax: 773/834-0733 E-Mail: Steven.Davis@ChicagoBooth.edu Cheryl Grim US Census Bureau Center for Economic Studies 4600 Silver Hill Road Washington, DC 20233 E-Mail: Cheryl.Ann.Grim@census.gov John C. Haltiwanger Department of Economics University of Maryland College Park, MD 20742 Tel: 301/405-3504 Fax: 301/405-3542 E-Mail: haltiwan@econ.umd.edu Mary Streitwieser Industry Benchmark Division Bureau of Economic Analysis 1441 L Street, N.W. Mail Stop 51 Washington, D.C. 20230 E-Mail: mary.Streitwieser@bea.gov AB - 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. ER -