The Problems of Peak Loads and Inventories

Abstract

Following their contribution to the debate on public utility, peak load, and electricity pricing, M.A. Crew and P.R. Kleindorfer published a note giving a set of conditions for efficient allocation of desired outputs, over n subperiods, among m plants, having constant average running and capacity costs. This paper extends their framework to accommodate the case in which the storing of products over the off-peak periods is feasible and derives the new set of optimal conditions. It is shown that, with storage facilities, fewer plants will in general be used and peak price will be lower than otherwise and that considerable welfare benefits can be obtained.