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

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.