Cross subsidies in Russian electric power tariffs: not as bad as their reputation

In most industrialized countries electric power tariffs for residentialconsumption are higher than for industrial customers. In Russia, asin some other transition countries, this pattern is reversed, but at thesame time the overall level of tariffs is very low. Cross subsidization ofresidential tariffs through industrial tariffs has been repeatedly criticizedby economists and international organizations. This note argues that,while it is inefficient to keep tariffs below social cost, cross subsidies canbe efficient. In fact, back of the envelop calculations for Russia suggest,that, given the prevailing level of tariffs, which is much too low, theirstructure is probably efficient.