Showing papers on "Stochastic discount factor published in 1979"

Stochastic Models of Peak-load Pricing

Abstract: So far, in setting out the classic peak-load model and its extensions, we have retained the assumption of that model that demand is deterministic. Many public utilities face demands that have not only the strong periodic element of the peak-load model, but also an important random element. Stochastic demand creates various complications which typically are not considered in the deterministic case. It is necessary to decide whether demand is to be met, and what happens, by way of rationing, when demand is not met.1 The analysis which follows is directed at answering these questions. In Section 4.1 we describe briefly some of the main contributions to the literature on peak-load pricing under uncertainty. In Section 4.2 we provide a general framework for analysing the problems of stochastic demand, comparing the results with the deterministic solutions derived in Chapter 3. Section 4.3 is concerned with examining some major issues of the stochastic problem, namely dealing with excess demand and rationing, Section 4.4 presents illustrative examples and Section 4.5 is a brief summary of stochastic peak-load pricing.

Selection of discount rates in energy cost analysis using discounted-cash-flow (DCF) and revenue-requirement (RR) methodologies

Abstract: The discounted cash flow (DCF) and revenue requirement (RR) methods are commonly used to analyze the cost of energy technologies. This paper shows that they are rigorously equivalent. The significance of and relationship between several rates of discount are explored under both noninflationary and inflationary economic conditions. For comparing energy costs between alternative future technologies, the RR method is almost universally used even though the DCF method is often claimed. Three rates of discount are studied. These are the before-tax discount rate; the nominal after-tax discount rate; and the effective, tax-adjusted discount rate. It is shown that any of these rates can be used in cost analysis, provided the right cash flow streams are considered. A general formula is developed that permits the calculation of unit energy cost on the basis of known and simple cost information. The general formulation for the DCF and RR methods is valid under both constant-dollar and inflationary conditions. It is also shown that a pricing policy can be designed to reflect noneconomic purposes and still satisfy financial requirements. Three pricing policies are explored: level price, inflation-adjusted price, and cost-of-money adjusted price. 16 references.