ABSTRACT
The literature on optimal pricing for public utilities has been expanded to include nonuniform pricing policies--that is, pricing schemes wherein the cost of consuming a given amount of the utility's service is not simply proportional to the amount consumed. This chapter discusses the theory of nonuniform pricing as developed in M. B. Goldman, H. E. Leland, and D. S. Sibley to the case of residential pricing of electricity. A crucial empirical question from the standpoint of pricing theory is whether subscribers will drop off the system as a result of the pricing policies undertaken by the regulated firm. One final concern is how nonuniform pricing fits into the movement toward peak load pricing. The economic problem is to design a price schedule that extracts considerable consumer surplus from the high demanders without forcing them out of the market or curtailing their demand too much.
