Efficient electricity pricing with self-rationing

✍ Scribed by Chi-Keung Woo

• Book ID: 104638036
• Publisher: Springer US
• Year: 1990
• Tongue: English
• Weight: 789 KB
• Volume: 2
• Category: Article
• ISSN: 0922-680X
• DOI: 10.1007/bf00139363

✦ Synopsis

Random rationing of generation capacity is ineffr because of the externality caused by an unpriced shortage. We eliminate the inefficiency by introducing a market for capacity via a self-rationing scheme that reflects a consumer's willingness-to-pay for electricity service. This scheme defines the notion of service reliability. We derive the optimal pricing and capacity planning rules under asymmetric information and demand uncertainty. The major findings are: (1) marginal cost pricing is ex ante efficient; (2) an electric utility's installed capacity should equal the total subscription for capacity; (3) the elec~ic utility breaks even with certainty; and (4) partial service curtailment is ex post efficient if consumer preference is weakly separable.