Efficient Intertemporal Utility Pricing under Uncertainty

✍ Scribed by L. Dean Hiebert

• Book ID: 101287153
• Publisher: John Wiley and Sons
• Year: 1997
• Tongue: English
• Weight: 88 KB
• Volume: 18
• Category: Article
• ISSN: 0143-6570
• DOI: 10.1002/(sici)1099-1468(199706)18:4<329::aid-mde829>3.0.co;2-l

✦ Synopsis

Electric utilities today face increasing competition from substitutes for utility-generated power. As a result, utilities are being forced to reevaluate their pricing policies to address competition from other fuels and potential customer `bypass' of the utility. This paper extends the analysis of second-best utility pricing to explicitly account for both the shortand long-run price responses of customers with competitive alternatives to utilitygenerated power. The presence of long-run substitution opportunities reduces the optimal percentage mark-up of price over marginal cost for noncore customers. Uncertainty concerning the substitution response of noncore electricity customers also tends to reduce the optimal price mark-up.