A discussion of feasibility of using marginal cost pricing for electricity rates. Since present rate structures which charge less per unit as the customer consumes more were established, there have been dramatic increases in amount of electricity consumed, as well as changes in patterns of use. Beginning in 1965 utilities began to encounter increases in capital and operating expenses. There are also long-term environmental and conservation reasons for changing the present rate structure. Rates based on marginal cost are appropriate and have been shown in Europe to be administratively feasible. A residential rate experiment conducted by the Los Angeles Department of Water and Power and The RAND Corporation using 2,000 households is described. Reaction to a variety of experimental rates will be measured, to observe number of kilowatt hours consumed, changes in consumption during peak and off-peak periods, and the impact of these rates on consumption of natural gas.
This report is part of the RAND Corporation Paper series. The paper was a product of the RAND Corporation from 1948 to 2003 that captured speeches, memorials, and derivative research, usually prepared on authors' own time and meant to be the scholarly or scientific contribution of individual authors to their professional fields. Papers were less formal than reports and did not require rigorous peer review.
This document and trademark(s) contained herein are protected by law. This representation of RAND intellectual property is provided for noncommercial use only. Unauthorized posting of this publication online is prohibited; linking directly to this product page is encouraged. Permission is required from RAND to reproduce, or reuse in another form, any of its research documents for commercial purposes. For information on reprint and reuse permissions, please visit www.rand.org/pubs/permissions.
The RAND Corporation is a nonprofit institution that helps improve policy and decisionmaking through research and analysis. RAND's publications do not necessarily reflect the opinions of its research clients and sponsors.