Peak-load Pricing Research Articles

A MODEL FOR CONSTRAINED PEAK-LOAD WATER AND WASTEWATER PRICING AND CAPACITY PLANNING

This article contains an application of peak-load pricing rules to public water services. The model presents a standard water distribution system and a separate wastewater collection and treatment system. Technical and financial constraints are considered. The optimization process provides peak-load prices for drinking water and sewerage services. These prices reflect efficiently the costs of systems constraints and the real value of water resources scarcity. They provide important guidance in the design of efficient water rates and in the development of different water utilities planning strategies. New technologies in water metering (telemetry) should permit applying this model.

Efficient Congestion Tolls in the Presence of Unpriced Congestion: A Peak and Off-Peak Simulation Model

This paper develops a congestion pricing model to examine efficient congestion tolls for an urban highway facility that resembles California State Route 91, the highway that has been subject to congestion tolls since December 27, 1995. Two lanes out of six (each way) are subject to congestion tolls, and the other four lanes are not. The simulation model combines the economic theories of second-best pricing of transportation facilities and peak-load pricing, and considers both welfare-maximizing and profit-maximizing cases. The simulation results show that the second-best peak period toll is quite low and that the welfare gains from the toll are modest compared to a regime in which all lanes are subject to tolls.

Is Airline Price Dispersion the Result of Careful Planning or Competitive Forces?

We develop a model of price dispersion to distinguish the impact of price discrimination from that of peak load pricing schemes or atypical competition resulting from the financial difficulties of the early 1990s. By utilizing three alternative measures of dispersion and appealing to economic theory for our specification, we find robust results suggesting an estrangement between price dis- persion and price discrimination. While some discrimination continues to persist at monopolized endpoints, most dispersion is associated with fare wars and peak load pricing schemes.

Multiple criteria and framing of decisions

This paper shows how a multi criteria approach to decisionmaking can be used as a general means of modelling the process of framing decisions. A multi objective goal programming approach is used to show how well known linear and nonlinear programming models, including the constant sum game, the distribution (transportation) model and peak load pricing problems can be seen as preemptively framed specializations of more general non preemptive specifications. In these specializations choices of optimal frames and of optima within those frames can be seen as potentially interactively optimizing parts of an overall multi criteria decisionmaking process. The paper also shows how this new way of modelling such interactions can be highly significant and leads directly to new kinds of frame related motivations for Allais-like revealed preference reversals and resolutions of the more for less and more for nothing paradoxes in the distribution model.

Public Economics, Public Projects, and their Funding

This paper illustrates the contribution of public economics to the analysis of public projects. The illustrations pertain to peak-load pricing (electricity) and to second-best pricing under a budget constraint (subways), also taking into account the pricing of substitutes (rail versus canals, fixed link versus air or ferries). The paper next reviews some difficulties in evaluating costs and benefits (for the Channel tunnel), compares briefly private versus public implementation, then turns to funding. After reviewing the pricing of derivatives in the Capital Asset Pricing Model and the computation of risk premia for public projects, the case for funding public projects on world capital markets is presented and applied to the denomination of Third World debt. The paper ends on a plea to consider the merits of a “World Insurance Agency for Development”.

Peak-Load Pricing of a Transportation Route with an Unpriced Substitute

This paper considers two routes to work, which could be two bridges, a freeway and a tollroad, or roadway travel and subway travel. Both routes are subject to pure bottleneck-and-queue congestion. If peak-load pricing can be imposed on both routes, the first-best solution is attained. However, if one route is unpriced, then the other route should have a second-best time-varying toll that is negative at the tails of the rush hour, positive near the peak of the rush hour, and zero on average. If the two routes have the same capacities, and if the parametergis 1, then two-thirds of the total traffic should use the priced route, and the efficiency gain of second-best pricing is two-thirds of the efficiency gain of first-best pricing.

A Study on the Real-time Ramp Control Method in Urban Highway Network

The present ramp control method of urban highway is not effective especially in the condition of heavy congestion because many operational constraints exist, The objective of this paper is to make a Real-time Ramp Control Method which is applicable to unstable traffic flow such as congestion. Peak load pricing is applied to this method in order to reduce the time that on-ramp is closed. In constructing such method, the main difficulty is the lack of algorithm which can quickly solve the optimization problem. In this paper, Genetic Algorithm is applied to help solve this particular problem.

Peak-Load Pricing and Facility Utilization in Higher Education

Buildings and facilities are a very large part of the cost of operating an institution of higher education. Yet some colleges and universities find that these facilities are often idle during certain times of the day or seasons of the year, while at other times facility capacity is inadequate. Pricing policies can be developed to encourage more efficient use of facilities and reduce the need for capital and operating funding from the state or private sources. A survey of over 400 students at the author's institution indicates that students would be responsive to the discounts in ways that would make it cost effective to offer such discounts.

The theory of peak-load pricing: A survey

The theory of peak-load pricing: A survey

Optimal pricing of transmission and distribution services in electricity supply

A new strategy for the separate pricing of transmission and distribution services in electricity supply is formulated and evaluated. The proposed methodology is a multivariate transmission generalisation of the method of peak load pricing previously applied to the optimal time-of-use pricing of generation on a power system with diverse generation technologies and with elastic demand. The method allocates both capacity and operational costs on a time-of-use basis, in an optimal manner, that avoids cross-subsidisation both between differing supply system participants and differing times of usage. The method is shown to promote the optimal development of the transmission, distribution or interconnecting systems, rewarding justified investments in transmission capacity and discouraging overinvestment. It also leads to appropriate returns on invested capital without significant 'revenue reconciliation'. This contrasts with SRMC (short run marginal cost) pricing as is shown by a comparative revenue evaluation. It is concluded that the method has wide potential application in electricity supply. These include the separate pricing of transmission and distribution services, the 'wheeling' and trading of electrical energy over intervening networks and use-of-system pricing in 'common-carrier' and 'second tier' trading.

The Effect of Rate-of-Return Regulation on Public Utility Pricing

In Korea, the price schedule for local telephone combines two-part tariffs and peak-load pricing subject to rate-of-return (RoR) regulation. Although the effect of RoR regulation on two-part tariffs or peak-load pricing has been separately analyzed by many authors in some detail, the behaviour of regulated firm under combined two-part and peak-load pricing has not been studied until now. This paper examines the effect of regulation on the rate structure and welfare under combined two-part and peak-load pricing.

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

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.< <ETX xmlns:mml="http://www.w3.org/1998/Math/MathML" xmlns:xlink="http://www.w3.org/1999/xlink">&gt;</ETX>

Peak-load pricing and reliability under uncertainty

This paper develops the welfare foundations of peak-load pricing under uncertainty, building on Brown and Johnson (1969), Crew and Kleindorfer (1976), and Chao (1983). The context is that of a welfare-maximizing public enterprise facing uncertain and nondeferrable demand, and uncertain supply. The paper first describes various elements of outage cost, including rationing costs, disruption costs, and surplus losses due to unsatisfied demand. Exact welfare-optimal results are then derived, in contrast to the earlier approximations by Turvey and Anderson (1977) and Chao (1983). The results are generalized to take account of diverse technologies and multiple planning periods, and their implications for utility pricing and investment in an integrated resource planning context are discussed.

Monopolistic peak load pricing when demand is dynamic

Abstract Peak load pricing within the context of private firms and dynamic demand is analysed. The recent deregulations (in the United States) and reprivatizations (e.g. in the United Kingdom) provide some real world examples. Moreover, the consumer demand is sluggish because of its dependence on durables, e.g. electricity consumption depends on the chosen electric appliances. This investigation focuses on the intertemporal decisions of consumers and a monopolistic supplier (Stackel-berg equilibrium). The positive setting and the consideration of dynamic demand contrast the traditional literature of peak load pricing devoted to normative aspects addressed within a static framework.

Residential Dual Energy Programs: Tariffs and Incentives

The problem of efficiently pricing electricity has been of concern to economists and policymakers for some time. A fundamental hurdle in the efficient pricing problem is that electricity is a non-storable commodity with a highly variable demand. Although variations in demand are in fact cyclical, with relatively well known patterns, the effects of peaking demand on required reserve margins and overall system cost and reliability can be significant. Today the problem is compounded by environmental and cost barriers to traditional capacity expansion responses. A natural solution has been to suggest tariffs which in some way smooth demand and thus reduce the need for excessive reserve margins. Time-of-use pricing, marginal cost pricing and peak-load pricing are all variations of this approach, and have been treated extensively in the literature. These principles usually involve some type of differential pricing with the implicit goal of shifting demand away from the peak.

INVESTING IN GRAIN STORAGE FACILITIES UNDER FLUCTUATING PRODUCTION*

Fluctuating annual harvest volumes create a peak load problem in the provision of grain storage capacity. There are a number of technologies for handling and storing grain, ranging from capital intensive to labour intensive methods. Optimal provision of grain storage capacity can therefore be analysed in the framework of the conventional peak load pricing model. An investment model of grain storage is outlined and the optimal technology choices are determined according to simple investment roles. Capacity of the more capital intensive storage types should be only provided if the extra capital cost is justified by the saving in operating costs, which depends on the expected utilisation of storage. Some level of supply failure is justifiable. An examination of grain storage costs in Western Australia revealed that horizontal storage was the best technology for dealing with most grain storage demand at sites where turnover is limited In the receival period. This concurs with the general investment choices in Western Australia. However, there appears to be a high level of overcapacity at many sites, implying that the cost of supply failure is perceived to be greater than the marketable value of the grain.

Peak-load pricing with continuous and interdependent demand

Issues concerning time-of-use (TOU) pricing with continuous and interdependent demand are examined in a context where increasing marginal costs of production, as opposed to capacity constraints, provide the major incentive for flattening the load curve. The analysis develops the underlying consumer preferences sufficient to insure a continuously varying load curve and generalizes previous considerations of the peak load pricing problem by simultaneously considering continuous and interdependent demand in determining optimal prices and pricing period lengths. A profit incentive for TOU pricing as a form of price discrimination is revealed, which is tempered as substitution across pricing periods allows limited intertemporal arbitrage. The profit incentive leads a price-regulated firm, ceteris paribus, to choose a peak pricing period longer than the social optimum.

Price Discrimination and Retail Configuration

The hypothesis that price discrimination based on willingness to pay for quality can occur in multifirm markets is confirmed using microdata on gasoline retailing. A test that discriminates between price structures associated with discrimination and with cost-driven, competitive differentials is developed and implemented with controls for variation in outlet and market characteristics. A second test based on profitability variation rejects a competitive, peak-load pricing explanation for the observed price dispersion. The data suggest that price discrimination at the retail level adds at least 9¢ a gallon to the average price of full-service gasoline.

Some Simple Analytics of Peak-Load Pricing

Author(s): Bergstrom, Ted; Mackie-Mason, Jeffrey K. | 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 it 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.

Peak-Load Pricing in Postal Services

The peak-load pricing problem for postal service is addressed in practice primarily by means of service differentiation according to class of mail. The authors demonstrate that lower priority mail at peak times helps to ameliorate, but does not eliminate, the peak-load problem. They derive welfare-optimal, service differentiated prices under peak-load conditions for a diverse mail-processing technology. The authors show the relationship between this class of problems and the traditional natural monopoly peak-load literature. The paper discusses the implications of the theory for U.K. and U.S. postal service practice and policy. Copyright 1990 by Royal Economic Society.