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The Simple Analytics of Peak-Load Pricing

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  • Ted Bergstrom

    ()
    (University of Michigan, Economic)

  • Jeff Mackie-Mason

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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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, L. R. & Herriges, Joseph A., 1984. "The Consistency of the Residential Customer Response in Time-Of-Use Electricity Pricing Experiments," Staff General Research Papers 10798, Iowa State University, Department of Economics.
  2. Parks, Richard W. & Weitzel, David, 1984. "Measuring the consumer welfare effects of time-differentiated electricity prices," Journal of Econometrics, Elsevier, vol. 26(1-2), pages 35-64.
  3. 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.
  4. 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.
  5. 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.
  6. 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.
  7. Hausmann, J. A. & Kinnucan, M. & McFaddden, D., 1979. "A two-level electricity demand model : Evaluation of the connecticut time-of-day pricing test," Journal of Econometrics, Elsevier, vol. 10(3), pages 263-289, August.
  8. 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.
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