The Persistence of Volumetric Pricing
This working paper paper analyzes the concept of fixed costs in electricity distribution, distribution cost recovery, and the persistence of volumetric pricing in regulated industries.
How to recover the costs of electricity distribution has become a prominent and controversial issue in the wake of California Public Utilities Commission proposals to reform compensation for solar electricity homeowners who sell into the grid, with subsequent proposals to recover more of the distribution costs through fixed charges based on household income. This debate raises questions about the ubiquity of volumetric pricing for fixed-cost recovery in regulated industries. Ideal cost recovery entails marginal cost pricing of kilowatt-hours delivered, per-user connections, and capacity needed to handle coincident peak use. Remaining uncovered costs of distribution should be recovered by fixed charges. Equity and efficiency considerations suggest assigning fixed charges on the basis of willingness to pay or income, although neither is perfect. Nevertheless, volumetric recovery of fixed costs has persisted for several reasons: mistaken analogies to competitive markets, simplicity, network effects, incumbent resistance, and fairness and rights. Getting pricing right matters not just for general efficiency but also to remove pricing barriers to decarbonization. For this reason, electricity regulators should consider recovering more fixed costs through fixed charges.
Working Paper — Nov 20, 2023
Daily Temperature and Sales of Energy-using Durables
This working paper from the European Institute on Economics and the Environment examines whether temperature and other weather variables affect sales of dryers and air conditioning units.
On the Issues — Nov 10, 2023
On the Issues: Renewable Energy Headwinds, Electric Grid Upgrades, and More
A biweekly newsletter connecting global current events, pressing climate and energy policy news, and economics research from RFF scholars. This week: Renewable Energy Headwinds, Electric Grid Upgrades, and More.
Press Release — Nov 9, 2023
Adding an Emissions Cap to the Inflation Reduction Act Could Create More Cost-Effective, Certain Emissions Reductions
New RFF modeling shows that a federal cap on power-sector emissions could carry the United States to its power-sector emissions goal, and that such a cap would be less expensive for emitters and households than it would have been otherwise.