Efficient pricing of private power supply under the Public Utilities Regulatory Policies Act
The Public Utilities Regulatory Policies Act of 1978 (PURPA) began a new era in electric utility regulation by creating a new class of power producers that operate free from traditional cost-of-service regulation but sell their power to conventionally regulated public utilities. The Act specified that the utility should pay an administratively-determined avoided-cost price equal to all costs it saved by purchasing private power. The author discusses the efficiency implications of avoided-cost pricing, considers a methodology for determining efficient avoided-cost prices and examines actual prices at which power was transacted to assess, ex post, their efficiency. The findings identify variables that influence the magnitude of an efficient avoided-cost payment, including the load level prevailing when the power is supplied, the commitment level of the supplier's contract with the utility and the utility's level of capacity saturation. Some states appear to make payments outside the efficient price parameters even after adjusting for variables not included in the parameters. In 1988, the Federal Energy Regulatory Commission issued a ruling which encouraged states to use bidding to select and price private power supply contracts. Some of the strategic issues are examined that arise in this new regime. The model developed suggests that bidders will find it profitable to raise their bids above those they would place in a static auction when they instead participate in a dynamic auction characterized by repeated rounds of bidding in which bidders drop out of the bidding after winning a contract. While this bid inflation reduces some of the distributive properties anticipated with competitive bidding, the model does demonstrate that contracts for private power supply are awarded efficiently under competitive bidding, whereas there is no guarantee of efficiency under the first-come, first-served rule applied under avoided-cost pricing.
- Research Organization:
- Harvard Univ., Cambridge, MA (United States)
- OSTI ID:
- 7236800
- Resource Relation:
- Other Information: Thesis (Ph.D.)
- Country of Publication:
- United States
- Language:
- English
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Related Subjects
POLICY AND ECONOMY
24 POWER TRANSMISSION AND DISTRIBUTION
ELECTRIC POWER
PRICING REGULATIONS
US PUBLIC UTILITY REGULATORY POLICIES ACT
RATE STRUCTURE
BIDS
ELECTRIC UTILITIES
PROFITS
STATE GOVERNMENT
LAWS
NATIONAL ENERGY ACTS
POWER
PUBLIC UTILITIES
REGULATIONS
296000* - Energy Planning & Policy- Electric Power
290201 - Energy Planning & Policy- Economics- (1992-)
240700 - Power Transmission & Distribution- Economic
Industrial & Business Aspects- (1990-)