Economic Theory and Operations Analysis.

Over the last 20 years, incentives in general and price caps in particular have breathed new life into public utility regulation. Price caps successfully combine incentives for cost reduction with incentives for more efficient pricing. These properties also facilitate opening public utility sectors to competition. Relatively tight price caps likely imply the right amount of competition, when the underlying natural market structure is unknown. While price caps make a regulated incumbent competitively more aggressive, this aggression is likely to improve on the unregulated outcome. Potentially anticompetitive behavior by the incumbent has led to regulation of essential inputs on the basis of benchmarked costs. Benchmarked costs should evolve into price caps for essential inputs and eventually lead to partial deregulation of end-user prices.

Incentive Regulation and Competition in Public Utility Markets: A 20-Year Perspective

This paper examines simultaneously the effects of a diverse technology (i.e., multiple plant types), stochastic demand, and rationing costs on the pricing policy of a welfare maximizing public utility where peak loads are present. Optimal pricing and operating policies are derived where the technology fulfills certain convexity conditions. The approach shows the efficiency of peak load pricing under stochastic demand conditions which contrasts with the results of earlier writers. Bounds on prices are derived. Comparisons with the deterministic demand case are made, and a numerical example shows the effects of changes in various parameters on prices and capacity.

Peak Load Pricing with a Diverse Technology

An overview of current research and developments in urban air mobility – Setting the scene for UAM introduction

Load management programs have been actively performed by the utilities to reduce peak demand and improve system load factor. In recent years, the time-of-use (TOU) tariff based on the peak load pricing theory has been one of the most effective load management strategies. Proper TOU rate structure can actually reflect the generation cost of electricity supplying and give a guideline for customers to modify the power consumption pattern so that the system load factor can be improved. The inverse electricity pricing rule can be applied as the basis of TOU pricing. In this paper, the price-elasticities of industrial customers of Taipower system are solved by the statistical regression model with 2620 data samples. >

Time-of-use pricing for load management programs in Taiwan Power Company

Peak-load pricing principles are developed for the profit-maximizing firm which is subject to one of three alternative methods of regulatory constraint. A comparison of the Kuhn-Tucker conditions which arises in the various cases indicates that the method of regulation can have a substantial effect on the distribution of price reductions between peak and off-peak users. Under regulation limiting rate of return on capital investment, the price reductions are received entirely by peak-period users. In contrast, when regulation limits profit per unit or return on cost, there are price reductions for all users.

Elizabeth E. Bailey

Papers

Peak-Load Pricing under Regulatory Constraint