Cross Subsidies in Russian Electric Power Tariffs: not as Bad as Their Reputation

Abstract

In most industrialized countries, electricity tariffs are higher for the population than for industrial consumers. In Russia, as in some other countries with economies in transition, everything is exactly the opposite, while the overall level of tariffs is very low. Cross-subsidization of tariffs for the population at the expense of industrial tariffs has been repeatedly criticized by economists and international organizations. This article shows that while keeping tariffs below social costs is inefficient, cross-subsidization can still be effective. According to the estimations carried out in the article for Russia, at too low level of tariffs their structure may be effective.