Electricity Marginal Cost Pricing

1st Edition

Applications in Eliciting Demand Responses

Authors: Monica Greer
Print ISBN: 9780123851345
eBook ISBN: 9780123854667
Imprint: Butterworth-Heinemann
Published Date: 2nd February 2012
Page Count: 366
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Packed with case studies and practical real-world examples, Electricity Marginal Cost Pricing Principles allows regulators, engineers and energy economists to choose the pricing model that best fits their individual market.

Written by an author with 13 years of practical experience, the book begins with a clear and rigorous explanation of the theory of efficient pricing and how it impacts investor-owned, publicly-owned, and cooperatively-owned utilities using tried and true methods such as multiple-output, functional form, and multiproduct cost models. The author then moves on to include self-contained chapters on applying estimating cost models, including a cubic cost specification and policy implications while supplying actual data and examples to allow regulators, energy economists, and engineers to get "a feel" for the methods with which efficient prices are derived in today’s challenging electricity market. The book is accompanied by a companion website which will allow for the testing of methods and validating results.

Key Features

  • A guide to cost issues surrounding the generation, transmission, and distribution of electricity
  • Clearly explains cost models which can yield the marginal cost of supplying electricity to end-users
  • Real-world examples that are practical, meaningful, and easy to understand
  • Explans the policy implications of each example 
  • Provide suggestions to aid in the formation of  the optimal market price


Power Engineers, Electrical Engineers, Energy Engineers, Energy Economist, Environmental Engineers, Mechanical Engineers, and Industrial Engineers

Table of Contents



Chapter 1. Introduction


Competitive Paradigm

Marginal Cost Pricing Doctrine

A Brief Overview of the United States Electric Market

Objective Functions: The Players

Reducing Carbon Emissions

Regulation of Investor-Owned Electric Utilities in the United States

Internalizing the Cost of Reducing Carbon Emissions

Optimal Rate/Tariff Design and Tax Credits to Promote Efficient Use of Energy and a Reduction in Carbon Emissions

Tariff Design and Rate-Making Issues


Chapter 2. The Theory of Natural Monopoly and Literature Review

The Natural Monopoly Conundrum

Defining Natural Monopoly

Economies of Scale

Efficient Industry Structure


Chapter 3. U.S. Electric Markets, Structure, and Regulations


The U.S. Electric Industry Structure


Market Participants

Vertically Integrated Model

Industry Restructuring and the Competitive Electric Market

Regulation of the Electric Utility Industry

Looking Forward: Renewable Resources and Generating Technologies

Future of the Electric Industry

Chapter 4. The Economics (and Econometrics) of Cost Modeling

General Cost Model

The Econometrics of Cost Modeling: An Overview

A Brief History of Cost Models and Applications to the Electric Industry



Chapter 5. Cost Models


Determination of an Appropriate Objective Function: A Brief Overview of the Literature

Rural Electric Cooperatives

Differences between Coops and IOUs

Literature Review: Cost Studies on Rural Electric Cooperatives


Review of the Literature: Cost Function Estimation in the Electric Utility Industry

Nerlove’s Cobb–Douglas Cost Model

Further Consider


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About the Author

Monica Greer


"Having trouble comprehending your electric bill? Think you can evaluate motor efficiency savings by using one simple number for price per kilowatt-hour? This book will enlighten you." --Electrical Apparatus, October 2012