Electric companies typically have 5-10 different rate schedules for their main customer groups. The average price charged to large industrial users may differ substantially from that charged to residences. Moreover, many consumers pay a price for electricity based on the time of day they use it. For example, the prices charged by Consolidated Edison, a large New York electric utility, and Pacific Gas and Electric, a major California electric utility, are as follows:

Electric utilities use their cheapest generators continuously and start up their more costly ones as demand goes up. Consequently, at 3 a.m., a utility might meet its requirements from a hydroelectric dam that produces electricity for $0.02 per kilowatt- hour. However, on a hot day in August, when air conditioners are running full blast, demand would be so great that the utility would be forced to use its most costly generators-perhaps an oil-fired plant where electricity costs $0.07 per kilowatt- hour.
a. Does price discrimination occur in the market for electricity?
b. Why have some state regulatory commissions, including the Public Service Commission of New York, ordered that time- of- day rates be phased in for residential consumers?
c. In many areas, both residential and industrial consumers tend to pay a lower price per kilowatt- hour if they use more rather than less electricity. Is this price discrimination? If so, what kind of price discrimination is it?
d. Explain why price discrimination is used by managers of electric companies.

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Price Company and Time of Day of Electricity Use (Cents per Kilowatt-Hour) Consolidated Edison 8 a.m.-10 p.m. (peak hours) 10 p.m.-8 a.m(off-peak hours) Pacific Gas and Electric Summer Noon-6 p.m. (peak hours) 6 p.m.-noon (off-peak hours) Winter Noon-6 p.m. (peak hours) 6 p.m.-noon (off-peak hours) Approximate figure 27.0 4 28.3 9.2 11.3 8.0