Time-of-day (peak-load) pricing of electricity is an indirect form
of load management that prices electricity according to differences in
the cost of supply by time of day and season of year. It reflects the costs
in a more accurate manner than do the traditional block rate structures,
as it logically stems from the marginal cost pricing theory, yet is
compatible with the historical accounting costs. It has long been argued
and advocated that the sale of electricity and other services, in which
periodic variations in demand are jointly met by a common plant of
fixed capacity, should be at time-differential tariffs. Despite a very rich
tradition of modeling, theoretical refinements in peak load pricing have
not attracted much attention of late. The present study seeks to model
seasonal time-of-day pricing of electricity for two types of power systems
– pure hydro and hydro-thermal under four structural welfare assumptions
– first-best, second-best, monopoly and constrained monopoly, in
conditions of both determinism and uncertainty.
Keywords: Time-differential pricing, first best, second best, monopoly,
uncertainty
JEL Classification: C6, D4, L94, Q4
