Peak Load Pricing with a Diverse Technology

Michael A. Crew and Paul R. Kleindorfer

Bell Journal of Economics, 1976, vol. 7, issue 1, 207-231

Abstract: 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.

Date: 1976
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