The Redistributional Impact of Nonlinear Electricity Pricing

Electricity regulators often mandate increasing-block pricing (IBP)-i.e., marginal price increases with the customer's average daily usage-to protect low-income households from rising costs. IBP has no cost basis, raising a classic conflict between efficiency and distributional goals. Combining household-level utility billing data with census data on income, I find that IBP in California results in modest wealth redistribution, but creates substantial deadweight loss relative to the transfers. I also show that a common approach to studying income distribution effects by using median household income within census block groups may be misleading. (JEL D31, L11, L51, L94, L98, Q41, Q48)