USE OF PEAK PRICING MARKETSPaige Kirstein

THE MARKET Market production must continue at max output

all the time. Market demand fluctuates intensely in a

predictable pattern.

GOAL

Limit Peak Usage Environmental Benefits Economic/Efficiency Benefits Avoid Outages

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

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

EMERGING NEW MARKETS

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

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

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.

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 isn’t created.

ELECTRICITY PILOT RESULTS

Price Incentives B = - 0.15, p < 0.01 Presence of price incentives decreases peak

usage Magnitude has minimal effect

Behavioral Incentives B = 0.33, p < 0.001 Behavioral commitments More knowledge of system = Stronger

commitments Three times larger effect than price

LESSONS FROM OTHER MARKETS

Traffic Clear Alternatives Individuals know to take different routes ---> Easy peak energy tips

Internet Cisco’s system pricing is “tiered, detailed, and

itemized billing to subscribers” ---> detailed, frequent billing

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