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Optimal Off-Peak Incremental Sales Rate Design in Electricity Pricing

Abstract:
Nonlinear pricing has recently become a subject of intense research in utility pricing. This research begins with the work on multipart tariffs which points out the superiority of nonlinear pricing over linear pricing and the importance of self-selection in regulatory pricing (see e.g., Brown and Sibley (1986), Faulhaber and Panzar (1977), Willig (1978) and Mirman and Sibley (1980)). That is, by providing a menu of rate options from which a ratepayer chooses what he most prefers, the utility and the ratepayers are both better off than when only one linear rate schedule is available (e.g., a non-time differentiated energy charge).

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Energy Specializations: Electricity – Markets and Prices

JEL Codes:
D42 - Market Structure, Pricing, and Design: Monopoly

Keywords: Electricity pricing, Nonlinear pricing, Optimal off-peak rate

DOI: 10.5547/ISSN0195-6574-EJ-Vol9-No1-8


Published in Volume 9, Number 1 of The Quarterly Journal of the IAEE's Energy Economics Education Foundation.