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Priority Pricing of Interruptible Electric Service with an Early Notification Option

Priority pricing of interruptible electric service induces each customer to self select a rationing priority that matches the rank order of its interruption loss. This paper extends the theory by considering the possibility of early notification, an option offered by many electric utilities. The proposed tariff structure allows a customer to choose either early notification and pay a fixed fee, or select no advance notification along with a level of compensation when interrupted. The chosen compensation determines customer service priority and corresponding price. Service priority is interpreted as an externality component of the marginal cost of system shortfall.

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JEL Codes: D81: Criteria for Decision-Making under Risk and Uncertainty, D11: Consumer Economics: Theory, D40: Market Structure, Pricing, and Design: General, D42: Market Structure, Pricing, and Design: Monopoly, L94: Electric Utilities

DOI: 10.5547/ISSN0195-6574-EJ-Vol14-No2-9

Published in Volume 14, Number 2 of the bi-monthly journal of the IAEE's Energy Economics Education Foundation.


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