Contributions to the theory of marginal cost pricing

Journal Article · · Bell J. Econ. Manage. Sci.; (United States)

DOI:https://doi.org/10.2307/3003196· OSTI ID:7180555

Joskow, P L

U.S. utility commissions are becoming interested in the application of ''peak-load'' or variable load price structures, based on marginal cost principles, to electric utility rate structures. Three related approaches to the peak-load pricing problem are identified: the American, British, and French approaches. The American approach points out that peak demand periods may shift in response to price, thus complicating the calculation of efficient prices. In contrast to this approach, the British approach seems to ignore the shifting peak and demand elasticity problems, but gives more attention to: 1)the calculation of the long-run marginal costs of providing services to meet a fixed set of demands in the context of a heterogeneous production technology; and 2)the optimal use of technical possibilities. The French approach combines the American approach, with its consideration of demand elasticity and shifting peaks, and the British approach, with its emphasis on technical possibilities for electric power generation. In addition, the French consider the uncertainty of electricity demand, resultant curtailment or rationing costs, and investments involved in transmission and distribution systems. These three approaches show that the application of marginal cost pricing principles to price calculations is complicated by such factors as demand elasticity, uncertainty, rationing costs, and heterogeneous technology. Problems in applying peak-load pricing theory are identified. (15 references) (BYB)

• Research Organization: Massachusetts Institute of Technology, Cambridge, MA
• OSTI ID: 7180555
• Journal Information: Bell J. Econ. Manage. Sci.; (United States), Journal Name: Bell J. Econ. Manage. Sci.; (United States) Vol. 7:1; ISSN BJEMA
• Country of Publication: United States
• Language: English

Related Subjects

29 ENERGY PLANNING, POLICY, AND ECONOMY
290200 -- Energy Planning & Policy-- Economics & Sociology
293000 -- Energy Planning & Policy-- Policy
Legislation
& Regulation
296000* -- Energy Planning & Policy-- Electric Power
CHARGES
ECONOMIC ELASTICITY
ECONOMICS
ELECTRIC POWER
EUROPE
FRANCE
NORTH AMERICA
PEAK-LOAD PRICING
POWER
POWER DEMAND
PUBLIC UTILITIES
REGULATIONS
UNITED KINGDOM
USA