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Intertemporal Allocation of Capital Costs in Electric Utility Capacity Expansion Planning Under Uncertainty

Listed author(s):
  • H. D. Sherali

    (Virginia Polytechnic Institute and State University)

  • A. L. Soyster

    (Pennsylvania State University)

  • F. H. Murphy

    (Temple University)

  • S. Sen

    (University of Arizona)

Registered author(s):

    This paper concerns marginal cost pricing in a capacity expansion problem for the electric utility industry. We develop a characterization of equipment selection and marginal capital cost allocation based on an optimal capacity plan, in the context of either a finite, discretely distributed stochastic demand forecast, or in the deterministic case of multiple users identified by temporal considerations. In either case, a two stage linear program with recourse is shown to result. The main purpose of this paper is to conduct an analysis in order to determine a marginal cost pricing strategy for sharing capital costs given an optimal capacity plan, and to provide insightful economic interpretations. Our results also generalize a special case previously studied to demonstrate how a marginal cost pricing strategy may result in some of the capacity costs being borne by off-peak users.

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    Article provided by INFORMS in its journal Management Science.

    Volume (Year): 30 (1984)
    Issue (Month): 1 (January)
    Pages: 1-19

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    Handle: RePEc:inm:ormnsc:v:30:y:1984:i:1:p:1-19
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