Service-reliability differentiated pricing with special reference to electric utilities

Thesis/Dissertation · Tue Jan 01 04:00:00 EST 1985

OSTI ID:5503459

Viswanathan, N

Owing to the uncertainty in supply availability and demand, there is always a certain amount of unreliability in the service provided by a public utility such as an electric utility. Consumers have a willingness to pay for the service when it is offered at perfect reliability. They also incur a shortage cost as a result of the unreliability in the service. There is heterogeneity among the consumers along both these dimensions, viz. the willingness to pay for perfect reliability and the shortage cost due to the unreliability in the service. Based on a knowledge of the distribution of these parameters, the utility can offer a range of reliabilities or priorities of service and price them accordingly, so that consumers can choose from a menu of alternatives. There results a positive net benefit from service-reliability differentiation or interruptible supply pricing, as it is otherwise called. This net benefit can be shared by the consumers and the public utility. It is shown that with the provision of multiple priorities, the quantity supplied for any given capacity is increased, thereby increasing the capacity utilization. In general, the reserve capacity requirement will be lowered with reliability differentiation, making the consumers as well as the utility better off at the same time. This is especially relevant when the supply capacity is scarce or when the costs of capacity expansion are high. Reliability-differentiation is especially beneficial during the peak periods, when the demand is more likely to exceed the capacity.

• Research Organization: Stanford Univ., CA (USA)
• OSTI ID: 5503459
• Country of Publication: United States
• Language: English

Related Subjects

29 ENERGY PLANNING, POLICY, AND ECONOMY
290200 -- Energy Planning & Policy-- Economics & Sociology
296000* -- Energy Planning & Policy-- Electric Power
CAPACITY
ELECTRIC UTILITIES
PEAK LOAD
POWER DEMAND
PRICES
PUBLIC UTILITIES
RELIABILITY
SERVICE SECTOR