A disaggregate econometric analysis of electricity distribution capital costs

Under the assumption that electric utilities minimize their capital, labor, and electric losses costs in each local distribution system, capital input demand functions are developed at a highly disaggregated level and econometrically estimated, using cross-sectional data on 55 communities served by Long Island Lighting Company. These functions are then used to clarify such policy issues as the allocation of joint capital costs on the basis of marginal costs, the existence of economies of scale and density, and the appropriateness of natural monopoly status for electricity distribution.