Marginal cost pricing of electricity

The proposal that marginal costs should be used as a basis for pricing is not new. Over the years many eminent economists have argued convincingly for and against the proposal, which has done little to advance its cause. Since the theoretical arguments of the welfare economist are not part of an already overfull engineering curriculum, and because of the obvious impracticability of the views expressed by extremist economists, most electrical rate engineers continue to use traditional tariff structures, leaving economists to argue about the merits of marginal cost pricing. This article argues the case that marginal costs can, and should, play an important role in the pricing of electricity