The Electric Gini: Income Redistribution Through Energy Prices

42 Pages Posted: 21 Oct 2019 Last revised: 4 Feb 2023

See all articles by Arik Levinson

Arik Levinson

Georgetown University

Emilson Delfino Silva

University of Alberta - Department of Marketing, Business Economics & Law

Date Written: October 2019

Abstract

Efficient electricity pricing involves two-part tariffs: a volumetric price equal to the marginal cost of producing an additional kilowatt hour (kWh) and a fixed fee to cover any remaining fixed costs. In this paper we explore how US electricity regulators depart from this simple two-part tariff to address concerns about income inequality. We first show that in theory, price setters concerned about inequality will charge lower fixed monthly fees and higher per-kWh prices, and increasing block prices to target higher users with even higher prices. Then we use a new dataset of 1,300 utilities across the US to show that these theoretical predictions are borne out in practice. Utilities whose ratepayers have more unequal incomes levy more redistributive tariffs, charging less to low users and more to high users. To quantify these comparisons, we develop a new measure of the redistributive extent of utility tariffs that we call the “electric Gini.” Utilities with higher electric Ginis (more redistributive tariffs) shift costs from households that use relatively little electricity to households that use more. But because electricity use is only loosely correlated with income, that redistribution does not meaningfully shift costs from households with low incomes to those with high incomes.

Suggested Citation

Levinson, Arik and Delfino Silva, Emilson, The Electric Gini: Income Redistribution Through Energy Prices (October 2019). NBER Working Paper No. w26385, Available at SSRN: https://ssrn.com/abstract=3472820

Arik Levinson (Contact Author)

Georgetown University ( email )

Emilson Delfino Silva

University of Alberta - Department of Marketing, Business Economics & Law ( email )

Edmonton, Alberta T6G 2R6
Canada

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