ABSTRACT
This chapter is distilled from an Official Report I wrote for the French Ministry of Industry in response to a complaint by one of the Ministry secretaries that Electricité de France (EDF) violated its own announced principle of marginal cost pricing (Lepage 1988). The main charge was that EDF underpriced its service to residential customers in order to induce those customers to increase their investment in electric heating equipment. EDF claimed, to the contrary, that its ‘all-nucleať policy of the 1970s had led to a substantial amount of excess capacity, and in the light of this excess capacity lower prices were required if it were to adhere to its principle of marginal cost pricing. EDF argued that its prices were as consistent as possible with its official doctrine that utility prices for each category of customers should be set at the ‘marginal cosť incurred for development of new plants needed to meet the demand forecast for that category.
