Economic-efficiency considerations in restructuring electric markets

Technical Report · Sun Dec 01 04:00:00 EST 1996

DOI:https://doi.org/10.2172/454007· OSTI ID:454007

Hill, L J

In response to the Energy Policy Act of 1992 and the Federal Energy Regulatory Commission`s subsequent rulemaking on transmission access, many states are exploring options to restructure their electric industries. In their deliberations on restructuring, policymakers should consider (1) the reliability of the electric system; (2) income-distribution effects on ratepayers and utilities; (3) social consequences such as effects on energy conservation, renewable energy, and the environment; and (4) economic efficiency. We address economic-efficiency considerations in this study. Economic efficiency is important because it is one of the primary reasons that policymakers should consider restructuring in the first place: improving the electric-industry`s efficiency lowers costs and, hence, electric prices. In this study, we look at the sources of (in)efficiency in existing and proposed electric markets with the objective of guiding policymakers to design efficient electric markets. The advantages of a competitive market are well known: it leads to lower costs for the utility, lower prices for consumers, more product choices, better customer service, and often the need for less regulation by federal and state agencies. In the short run, firms who cannot produce at the market-clearing price are forced to leave the industry, ensuring that customers have the lowest price possible. In the long run, competition promotes innovation and lower costs. The physical and institutional characteristics of the U.S. electric industry, however, could be impediments to attaining efficiently run, competitive markets. Because of these characteristics, there are multiple sources of efficiencies and inefficiencies in existing electric markets, and there will be multiple sources in restructured ones. The objective of policymakers should not be to trade one set of inefficiencies in existing electric markets for another set in restructured markets.

• Research Organization: Oak Ridge National Lab., TN (United States)
• Sponsoring Organization: USDOE Assistant Secretary for Energy Efficiency and Renewable Energy, Washington, DC (United States)
• DOE Contract Number: AC05-96OR22464
• OSTI ID: 454007
• Report Number(s): ORNL/CON--436; ON: DE97051262
• Country of Publication: United States
• Language: English

Related Subjects

29 ENERGY PLANNING, POLICY, AND ECONOMY
99 GENERAL AND MISCELLANEOUS
COMPETITION
ECONOMIC POLICY
ECONOMICS
EFFICIENCY
ELECTRIC POWER INDUSTRY
ELECTRIC UTILITIES
ENERGY MANAGEMENT
MARKET
USA