Cheryl Grim (Center for Economic Studies, U.S. Census Bureau), Steven J. Davis, John Haltiwanger, Mary Streitwieser

Electricity Prices at U.S. Manufacturing Plants, 1963-2000

We study the distribution of electricity prices paid by U.S. manufacturing plants from 1963 to 2000. Our study relies on a newly constructed database that includes information for more than 48,000 manufacturing plants per year linked to additional data on electricity suppliers.

The shipments-weighted standard deviation of log electricity prices across manufacturing plants stood at 26% in 1963, fell sharply to 16% by 1978, and then changed little over the next 22 years. The “great compression” of price differentials in the 1960s and 1970s reflects a dramatic erosion of quantity discounts: the elasticity of price with respect to annual electricity usage declined from -17.5% in 1963 to -6.5% in 1976, and the fraction of overall dispersion accounted for by usage differentials shrank from 67% to 15%.

Despite efforts to improve the national electricity transmission grid during our sample period and to promote competition in wholesale and retail markets during the 1990s, the spatial dispersion in electricity prices is remarkably stable. The between-county standard deviation of log electricity prices ranges from about 11 to 13% over the past four decades, with no trend. Most of this spatial variation reflects average price differences among roughly 350 utilities that supply most of the electric power to the manufacturing sector. In turn, power source differences explain much of the average price differences among utilities.

Keywords: electricity price distribution; spatial price dispersion; price-quantity schedule

JEL Codes: L60, L94, Q40

Session: 5c   Room 2002   Category: Industry studies

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