| This study investigates the effects of peak load tariffs on three aspects of industrial peak period electricity use--kilowatthour energy use, maximum kilowatt demand, and kilowatt demand at the time of the utility system peak. The tariffs include two types of charges: The peak demand charge, which assesses the firm's maximum kilowatt demand within the peak hours, and the peak energy charge, which charges a premium for peak period kilowatthours.;Implicit in most of the peak load literature is the assumption of flat demand. Where intrapeak demand fluctuations have been considered, they have typically been treated as completely random. The model here suggests that firms can reduce these fluctuations, and that a charge for such fluctuations, in addition to a charge for energy use, should be considered.;Hypotheses derived from the model are tested using regression and nonparametric tests. Cross-section regression yields the results that the peak demand charge reduces all three aspects of peak use: energy, maximum demand, and coincident demand. The peak energy charge reduces coincident demand only. Nonparametric tests using a cross section of changes over time give additional evidence that the peak demand charge reduces peak energy use and intrapeak maximum demand. Coincident demand increases but this appears to be caused by changes in the state of the economy and weather conditions.;The benefits of the charges are compared to implementation costs using an applied social welfare analysis. The benefits exceed the costs. From a public policy standpoint, the results suggest that peak load demand and energy charges are both cost-effective.;In this study, the traditional theory of input demand is modified to consider peak load demand and energy charges, and their effects on the firm's pattern of production and derived demand for electricity. Included in the model are two other time-dependent parameters: wage and electric efficiency. The model leads to the finding that the effects of the two peak charges on the firm's level and pattern of electricity use are dependent on whether or not industrial load fluctuates within the tariff peak. When electricity use is flat (nonfluctuating), the two charges are essentially equivalent. But when use fluctuates, the primary effect of the peak energy charge is to reduce the level of demand, while that of the peak demand charge is to reduce the maximum demand. |
