USE OF PEAK PRICING MARKETS

1
USE OF PEAK PRICING MARKETS

• Paige Kirstein

2
THE MARKET

• Market production must continue at max output all
  the time.
• Market demand fluctuates intensely in a
  predictable pattern.

3
GOAL

• Limit Peak Usage
• Environmental Benefits
• Economic/Efficiency Benefits
• Avoid Outages

4
METHOD

• Price Fluctuations based on peak times of usage
• Fluctuations must be
• Expensive enough to change behavior
• Cheap enough to not debilitate those without the
  option of changing when they utilize.
• Understandable
• Relevance of the destination of the money

5
PRECEDENTS

• NYC Train System
• Peak and not peak fares.
• Cell Phone Minutes
• Peak minutes and not peak minutes.
• Movie Theatre Tickets
• Matinee, super matinee, and evening tickets

6
EMERGING NEW MARKETS
7
INTERNET

• Constrained Bandwidth
• Current Flat Rate
• Punishes light users
• Proposed Fluctuating per usage rate
• Limit excessive usage
• Encourage off peak usage (night time)
• Cisco charging plan

8
TRAFFIC

• Constrained Road Size
• Current
• No tolls on most roads
• Same tolls at all times of day
• Proposed Varying Fees
• Higher travel costs
• Changed travel behaviour
• Shorter travel times
• Revenue generation

9
STOCKHOLM TRAFFIC CASE STUDY

• Prices
• 6.50 to go by car through city centre peak,
  4.30 non peak
• 4.30 via Essingleden during peak hours, and 0
  non peak
• Progressive Tax
• Employed affected more than unemployed
• Rich affected more than Poor
• Overall effects on traffic
• reduce the number of car journeys by almost 5
  for the county
• number of journeys made by public transport is
  estimated to increase by 3
• walking and cycling increase by slightly more
  than 1.
• Number of car trips during peak hours reduced by
  20 in the inner city.

10
ELECTRICITY

• Constrained electricity output
• Current slight variation between peak (day) and
  off peak (night)
• Pre-contract pricing and spot pricing
• Creation of over 15 demand in order to prevent
  black outs.
• Proposed
• Comprehensive, fluid method of charging.
• Distributed usage will require less electricity.
• Average prices cheaper if excess isnt created.

11
ELECTRICITY PILOT RESULTS

• Price Incentives
• B - 0.15, p lt 0.01
• Presence of price incentives decreases peak usage
• Magnitude has minimal effect
• Behavioral Incentives
• B 0.33, p lt 0.001
• Behavioral commitments
• More knowledge of system Stronger commitments
• Three times larger effect than price

12
LESSONS FROM OTHER MARKETS

• Traffic
• Clear Alternatives
• Individuals know to take different routes
• ---gt Easy peak energy tips
• Internet
• Ciscos system pricing is tiered, detailed, and
  itemized billing to subscribers
• ---gt detailed, frequent billing

13
ADDITIONAL NON-MONETARY INCENTIVES

• Educate about the rate structure
• an understandable auction
• Switch non-cooperative game theory to
  cooperative
• Devices
• Subsidies on timers
• Requirements for Smart Meters
• Indoor meters

14
EXTRANEOUS

• Most effects individuals that live inside city
  center
• Create exclusively rich centers
• Exemptions/discounts for area residents?