Stranded on the road to electricity competition
- Clemson Univ., SC (United States)
If competition is given free rein, the law of supply and demand will drive down the cost of producing power. In the best-case scenario, consumers may see as much as a 40-percent reduction in the price of electricity in the long run, say Michael T. Maloney, Robert E. McCormick, and Raymond D. Sauer, professors of economics at Clemson University in Clemson, South Carolina. A regulatory monopoly is doomed to failure, the authors say, because under that system {open_quotes}the more a firm spends, the more money it is allowed to make for its shareholders.{close_quotes} In addition, the authors discount the notion that government should bail out utilities for their capital investments-or stranded costs-during a transition period. {open_quotes}Efficient firms that invest prudently are rewarded with lower costs of capital in competitive markets, and this will remain so for competitive producers of electricity,{close_quotes} the authors say. {open_quotes}Any utility that is allowed to recover some or all of its stranded costs by regulatory fiat in the transition to competition will receive an economic windfall that will not cause it to change its behavior.{close_quotes} In fact, stranded costs are primarily the result of the experiment with nuclear energy. {open_quotes}Consumers are still paying for the cost overruns,{close_quotes} the authors say.
- OSTI ID:
- 576815
- Journal Information:
- Forum for Applied Research and Public Policy, Journal Name: Forum for Applied Research and Public Policy Journal Issue: 3 Vol. 12; ISSN FARPEL; ISSN 0887-8218
- Country of Publication:
- United States
- Language:
- English
Similar Records
The cost of capital does not compensate for stranded-cost risk
Demystification - the economic realities of securitization