Plug-in Electric Vehicles (PEV) have a potential amount of battery energy storage capacity, which is not fully utilized in regular day-to-day travels. The utilization of spare PEV battery capacity for grid support applications using Vehicle-to-Grid (V2G) concept is becoming popular. Depending on the stress on the grid during peak load periods, a small amount of peak shaving support from the PEVs in a feeder can be useful in terms of grid support. However, as the PEV batteries have limited capacity and the capacity usage is also constrained by travel requirements, a strategy is proposed in this paper for an effective utilization of the available PEV battery capacity for peak shaving. A controllable discharging pattern is developed to most utilize the limited PEV battery capacity when peak shaving is most valuable based on the demand pattern. To ensure an effective use of the available PEV battery capacity for travel, which is the main usage of the PEVs, and for grid support application, dynamic adjustments in PEV discharging rates are made. The effectiveness of the proposed strategy is tested using a real distribution system in Australia and based on practical PEV data.