Peak Load Pricing under Regulatory Constraint: Two Remarks

Abstract

Two aspects of the effects of peak-load pricing regulation on peak and non-peak users are examined using a more general model than the profit-maximization model that is traditionally used. The first aspect examined is that capacity constraints appear in peak-load pricing models as inequalities. The second concerns prices paid by peak versus non-peak users as a result of regulated capacity size. Adjustment cost provisions for purchasing new capacity and allowances for substitutability in existing capacity are included in the new model. Results verify that rate of return regulation benefits non-peak as well as peak users because marginal operating cost is not affected by regulation. They also verify earlier findings that capacity size is inversely related to a fair rate of return. 11 references.