This study presents a model for the n-period variable load pricing in electricity industry with k types of capacity (technology).
Time interdependency of demands, asymmetricity of cross price effects and linearity of O&M and capital cost are assumed. The model considers both welfare maximizing and profit maximizing firm. The variable load pricing problem of welfare maximizing firm is formulated as market equilibrium problem since we assume the asymmetricity of cross price effects.
The emphasis of study is on the different effects of regulation methods on the regulated firm's price setting and capital input. This study also investigates other topics in the variable load pricing-economies of scale storage possibilities.
Major findings are:
(1) Under rate-of-return regulation, the price reductions are relatively large in peak period and relatively small or negative (price increases) in off-peak period (that is contrary to load management). And the regulated firm has a tendency to establish the capital excessively (overutilize).
(2) Under regulation limiting firm's profit per unit output, there are price reductions in all time periods. And there is no capital input distortion.
(3) Under return-on-cost regulation, there are price reductions (in proportion to the marginal cost) in all periods. And the regulated firm has a tendency to establish the capital excessively.
(4) Under regulation limiting the weighted average price level, there are price reductions (in proportion to the difference between limiting price and marginal cost) in all time periods. And there is no capital input distortion.
(5) Under break-even constrain (when welfare maximizing firm has decreasing cost) the firm has a tendency to underutilize the capital.