Progressive pricing : an alternative technique for the electricity industry

Abstract

The majority of decision-makers in New Zealand are of libertarian persuasion. In line with this thinking the electricity industry is moving towards marginal cost pricing. As with other business enterprises this move is occurring without regard for the long term social and environmental consequences of electricity pricing.

This report discusses the present pricing structure and compares it with an alternative structure known as progressive pricing. The approach taken is to consider these pricing mechanisms in terms of their impact on: social equity; economic efficiency; and environmental sustainability. Each pricing system has merits. The present pricing system is more likely to achieve efficiency. Progressive pricing, in the form proposed, is more likely to be developed in a manner that can incorporate environmental costs and fulfil a goal of egalitarian equity. In conclusion, although there are potential advantages with the progressive pricing structure more work is required to determine its suitability for the New Zealand electricity market.