Some Simple Analytics of Peak-Load Pricing
Volume: Volume 22, No. 2
Issue: Summer 1991
Pages: pp. 241-249
Authors: Ted Bergstrom and Jeffrey K. MacKie-Mason
Title: Some Simple Analytics of Peak-Load Pricing
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 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.
JEL Classification
Electric Utilities Power Plants (L940)
Gas Utilities; Pipelines; Water Utilities (L950)
Market Structure and Pricing: Other (D490)
Industry Studies Electrical, Gas, Communication,
and Information Services (6352)
Regulation
of Public Utilities (6130)
Energy (7230)