The real debate over purchased power
Which is riskier - building plants or buying power? Which is more cost effective? There`s no simple answer, but regulators can help make the playing field level by taking account of how demand risk is borne in buy and build settings. The best alternative may be to let utility affiliates bid on home turf. Purchased power is here to stay. Indeed, during the last decade over 80% of new generation capacity has been supplied by IPPs. But the financing of purchased power agreements has stimulated much debate about the desirability of purchased power and its effect on utility risk. The authors review this debate and then focus on what they believe is the real debate over purchased power: how to devise regulatory rules that (1) insure that the least-cost suppliers of generation services supply the power, and (2) guarantee that all parties are fairly compensated for the risks they bear. They explore various regulatory schemes to accomplish these goals and conclude that regulators should allow separately capitalized, unregulated utility subsidiaries to compete for power supply contracts against IPPs. Regulators should also ensure that utility investors are compensated for risks borne when power contracts are awarded. This requires that utilities either be compensated for any risks the contracts create or be insulated from those risks through guaranteed recovery of purchased power costs.
- OSTI ID:
- 35602
- Journal Information:
- Electricity Journal, Journal Name: Electricity Journal Journal Issue: 7 Vol. 7; ISSN ELEJE4; ISSN 1040-6190
- Country of Publication:
- United States
- Language:
- English
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