A Comparison of Electricity-Pricing Programs: Economic Efficiency, Cost Recovery, and Income Distribution

Abstract

This article empirically compares four electricity-pricing programs—increasing-block pricing (IBP); floating increasing-block pricing (FIBP); free market pricing (FMP); and a price-cum-trade incentive system (PTS)—in terms of efficiency, cost recovery, and income distribution by using the residential electricity data of Taiwan. The research results show that IBP and FIBP suffer from the same problem: It is hard to be cost-neutral. Further, FMP is economically efficient while favoring the electric utility over the households. PTS—which is a pricing program that satisfies the second fundamental theorem of welfare economics—shows a better ability to consider economic efficiency and equity simultaneously.