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Efficient Electricity Pricing with Self-Rationing

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  • Woo, Chi-Keung

Abstract

Random rationing of generation capacity is inefficient because of the externality caused by an unpriced shortage. We eliminate the inefficiency by introducing a market for capacity via a self-rationing scheme that reflects a consumer's willingness-to-pay for electricity service. This scheme defines the notion of service reliability. The authors derive the optimal pricing and capacity planning rules under asymmetric information and demand uncertainty. The major findings are: (1) marginal cost pricing is ex ante efficient; (2) an electric utility's installed capacity should equal the total subscription for capacity; (3) the electric utility breaks even with certainty; and (4) partial service curtailment is ex post efficient if consumer preference is weakly separable. Copyright 1990 by Kluwer Academic Publishers

Suggested Citation

  • Woo, Chi-Keung, 1990. "Efficient Electricity Pricing with Self-Rationing," Journal of Regulatory Economics, Springer, vol. 2(1), pages 69-81, March.
  • Handle: RePEc:kap:regeco:v:2:y:1990:i:1:p:69-81
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    Citations

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    Cited by:

    1. Moore, J. & Woo, C.K. & Horii, B. & Price, S. & Olson, A., 2010. "Estimating the option value of a non-firm electricity tariff," Energy, Elsevier, vol. 35(4), pages 1609-1614.
    2. Bernard, Jean-Thomas & Roland, Michel, 2000. "Load management programs, cross-subsidies and transaction costs: the case of self-rationing," Resource and Energy Economics, Elsevier, vol. 22(2), pages 161-188, May.
    3. Clastres, Cédric, 2011. "Smart grids: Another step towards competition, energy security and climate change objectives," Energy Policy, Elsevier, vol. 39(9), pages 5399-5408, September.
    4. Chao, Hung-po, 2011. "Efficient pricing and investment in electricity markets with intermittent resources," Energy Policy, Elsevier, vol. 39(7), pages 3945-3953, July.
    5. Cédric Clastres & Haikel Khalfallah, 2014. "An analytical approach for elasticity of demand activation with demand response mechanisms," Working Papers halshs-01019679, HAL.
    6. Clastres, Cédric & Khalfallah, Haikel, 2015. "An analytical approach to activating demand elasticity with a demand response mechanism," Energy Economics, Elsevier, vol. 52(PA), pages 195-206.
    7. Serra, Pablo J., 1997. "Energy pricing under uncertain supply," Energy Economics, Elsevier, vol. 19(2), pages 209-223, May.
    8. Fred Schroyen & Adekola Oyenuga, 2011. "Optimal pricing and capacity choice for a public service under risk of interruption," Journal of Regulatory Economics, Springer, vol. 39(3), pages 252-272, June.
    9. Woo, C.K. & Sreedharan, P. & Hargreaves, J. & Kahrl, F. & Wang, J. & Horowitz, I., 2014. "A review of electricity product differentiation," Applied Energy, Elsevier, vol. 114(C), pages 262-272.
    10. J. Salerian, 1992. "The Application of a Temporal Price Allocation Model to Time-of-Use Electricity Pricing," Economics Discussion / Working Papers 92-11, The University of Western Australia, Department of Economics.
    11. Hung-po Chao, 2011. "Demand response in wholesale electricity markets: the choice of customer baseline," Journal of Regulatory Economics, Springer, vol. 39(1), pages 68-88, February.
    12. Greening, Lorna A., 2010. "Demand response resources: Who is responsible for implementation in a deregulated market?," Energy, Elsevier, vol. 35(4), pages 1518-1525.
    13. Woo, Chi-Keung, 2001. "What went wrong in California's electricity market?," Energy, Elsevier, vol. 26(8), pages 747-758.
    14. Claudia Mejía Pérez, 1999. "La pobreza en Colombia 1978 y 1995 : indicadores," Lecturas de Economía, Universidad de Antioquia, Departamento de Economía, issue 51, pages 195-222, Julio Dic.
    15. Woo, C.K. & Kollman, E. & Orans, R. & Price, S. & Horii, B., 2008. "Now that California has AMI, what can the state do with it?," Energy Policy, Elsevier, vol. 36(4), pages 1366-1374, April.
    16. Cédric Clastres & Haikel Khalfallah, 2015. "An Analytical Approach to Activating Demand Elasticity with a Demand Response Mechanism," Post-Print hal-01222582, HAL.
    17. repec:eee:ejores:v:269:y:2018:i:3:p:1165-1179 is not listed on IDEAS
    18. Dlamini, Ndumiso G. & Cromieres, Fabien, 2012. "Implementing peak load reduction algorithms for household electrical appliances," Energy Policy, Elsevier, vol. 44(C), pages 280-290.
    19. Cédric Clastres, 2011. "Smart grids : Another step towards competition, energy security and climate change objectives," Post-Print halshs-00617702, HAL.
    20. Hayn, Marian & Bertsch, Valentin & Zander, Anne & Nickel, Stefan & Fichtner, Wolf, 2016. "The impact of electricity tariffs on residential demand side flexibility," Working Paper Series in Production and Energy 14, Karlsruhe Institute of Technology (KIT), Institute for Industrial Production (IIP).
    21. Horowitz, I. & Woo, C.K., 2006. "Designing Pareto-superior demand-response rate options," Energy, Elsevier, vol. 31(6), pages 1040-1051.
    22. Doucet, Joseph A. & Jo Min, Kyung & Roland, Michel & Strauss, Todd, 1996. "Electricity rationing through a two-stage mechanism," Energy Economics, Elsevier, vol. 18(3), pages 247-263, July.
    23. Hung-po Chao, 2012. "Competitive electricity markets with consumer subscription service in a smart grid," Journal of Regulatory Economics, Springer, vol. 41(1), pages 155-180, February.

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