Electric-utility deregulation: estimated price and welfare consequences
The existing system of regulating electric utilities is widely thought to discourage efficiency and innovation and to weaken the industry's financial health. Consequently, the deregulation of electric generation, which would substitute the carrot and stick of competition for government overview of rates and investments, has been proposed as one solution to the problem. Several proposals would separate the industry's functions. As an example, a regulated or publicly owned transmission entity might transmit power from unregulated competitive generation companies to large customers and local distribution firms. But the resulting bulk power market would be oligopolistic. This is because significant scale economies and transmission costs would ensure that generation firms would compete with only a few neighbors; as a result, prices would in general exceed marginal cost. The purpose of this paper is to simulate such deregulated power markets, and to compare the resulting bulk power prices against: (1) regulated prices based on embedded average cost; and (2) marginal cost pricing. Because it is difficult to estimate their magnitude, no credit is taken for production efficiency gains that might result from competition. Thus, identical cost patterns are assured for all scenarios, and the focus is on allocative (pricing) efficiency.
- Research Organization:
- Oak Ridge National Lab., TN (USA); New York State Public Service Commission, Albany (USA); Cornell Univ., Ithaca, NY (USA). Dept. of Environmental Engineering
- DOE Contract Number:
- W-7405-ENG-26
- OSTI ID:
- 6019087
- Report Number(s):
- CONF-830583-2; ON: DE83012632
- Country of Publication:
- United States
- Language:
- English
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COST
DEREGULATION
EFFICIENCY
ELECTRIC UTILITIES
ELECTRICITY
POWER GENERATION
PRICES
PUBLIC UTILITIES