REGRESSIVITY OF MARGINAL COST PRICING OF ELECTRICITY

In this study we analyse the impacts that long term marginal cost pric ing of electricity would have on Quebec residential customers. The mai n conclusions are the following: first, the annual bill increases are significant, that is, 18 or 28 per cent on average, if we take the adj ustment of consumption to price or not. Second, nominal bill increases by income class range on average from $119 to $206 when consumption r eacts to price changes and from $186 to $337 (1989 dollars) with no su ch adjustment. Finally, Hydro-Quebec's current pricing is regressive w ith respect to income and that could be made worse by the introduction of marginal cost pricing. Bill increases are proportional by income c lass. In this analysis, the fixed monthly charge is held constant with or without marginal cost pricing. Since this fixed monthly charge is regressive by nature, the government could easily correct the negative effect on income distribution associated with marginal cost pricing b y lowering the fixed monthly charge. The regressivity argument used to justify the current average cost pricing formula is rather weak.