Distributional effects of energy costs: Does firm ownership structure matter?

Abstract

This paper examines the effect of ownership structure on the distribution of household electricity costs and its implications for income inequality. We leverage data on household electricity expenditure, income, and utility tariff structures to provide new insights into the comparative merits of alternative ownership regimes in the U.S. electricity sector. We use ownership discontinuities between adjacent statistical areas to establish causal effects. We find strong evidence that electricity costs are more regressive under cooperative and public ownership, resulting in undesirable distributional outcomes. Households served by cooperative and publicly-owned utilities spend a larger share of their income on electricity than those served by private utilities. We present suggestive evidence that high fixed charges and limited segmentation of economically diverse consumer groups are potential mechanisms driving the observed regressivity of electricity costs. Our findings highlight the role of firms ownership structures and pricing strategies in shaping existing income inequality by determining how energy burdens are distributed across income groups.