Peak Load Pricing in the Electric Utility Industry

John T. Wenders

Bell Journal of Economics, 1976, vol. 7, issue 1, 232-241

Abstract: In the electric utility industry cost minimization requires that heterogeneous electric generation technologies be used to produce electricity demands of different durations. In contrast to the conclusions of traditional peak-load pricing theory, the existence of a heterogeneous capital stock means that off-peak marginal cost prices almost always should include some marginal capacity costs, and that the profit maximizing regulated electric utility may set peak price above marginal cost and off-peak price below marginal cost in order to encourage the expansion of capital-intensive base load generating capacity.

Date: 1976
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