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The Simple Analytics of Peak-Load Pricing

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Author Info
Ted Bergstrom () (University of Michigan, Economic)
Jeff Mackie-Mason

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Abstract

Consider a public utility that offers its service at two different times. We study the effects of a change from uniform pricing throughout the day to peak-load pricing. We show that for a utility constrained to operate with a fixed rate of return on capital, the introduction of peak-load pricing can plausibly reduce the price of the service {\it both\/} in peak and off-peak times. We also find that peak-load pricing can lead to either greater or smaller capacity than uniform pricing. We find a simple criterion for determining whether a particular individual gains or loses from peak -load pricing.

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File URL: http://www.econ.ucsb.edu/~tedb/PubFin/peakload.ps
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Paper provided by University of Michigan, Department of Economics in its series Papers with number _035.

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Handle: RePEc:wop:michec:_035

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  1. Caves, Douglas W. & Christensen, Laurits R. & Herriges, Joseph A., 1984. "Consistency of residential customer response in time-of-use electricity pricing experiments," Journal of Econometrics, Elsevier, vol. 26(1-2), pages 179-203. [Downloadable!] (restricted)
  2. Howrey, E. Philip & Varian, Hal R., 1984. "Estimating the distributional impact of time-of-day pricing of electricity," Journal of Econometrics, Elsevier, vol. 26(1-2), pages 65-82. [Downloadable!] (restricted)
  3. Ted Bergstrom & Jeffrey K. MacKie-Mason, 1991. "Some Simple Analytics of Peak-Load Pricing," RAND Journal of Economics, The RAND Corporation, vol. 22(2), pages 241-249, Summer. [Downloadable!] (restricted)
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  4. Manning, Williard Jr. & Mitchell, Bridger M. & Acton, Jan Paul, 1979. "Design of the Los Angeles peak-load pricing experiment for electricity," Journal of Econometrics, Elsevier, vol. 11(1), pages 131-194, September. [Downloadable!] (restricted)
  5. Elizabeth E. Bailey & Lawrence J. White, 1974. "Reversals in Peak and Offpeak Prices," Bell Journal of Economics, The RAND Corporation, vol. 5(1), pages 75-92, Spring. [Downloadable!] (restricted)
  6. John T. Wenders, 1976. "Peak Load Pricing in the Electric Utility Industry," Bell Journal of Economics, The RAND Corporation, vol. 7(1), pages 232-241, Spring. [Downloadable!] (restricted)
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