Location theoretic analysis of competition in electrical generation

Thesis/Dissertation · Sat Jan 01 04:00:00 EST 1983

OSTI ID:6796273

Hobbs, B F

Advocates of deregulation of electricity generation believe that it would spur efficiency and aid the industry's finances, but scale economies and transmission costs would cause deregulated power markets to be oligopolistic. Location theoretic modes, which account for the effect of location upon firm behavior, are developed to calculate the likely range of deregulated prices. THe lower bound occurs when firms believe that rivals will hold rates fixed. Limit pricing, the assumed upper bound, is where prices are set to prevent entry. Continuous location models are applied. They assume uniformity over space of demand functions, firm location, and production costs. Equilibrium prices are calculated for both the short and long run for a bulk power market in upstate New York. In the short run, deregulation raises prices by 48% to 68%, on average. This is because average costs, the basis of regulated prices, are less than either the expense of running oil fired plants or the cost to entrants of a new coal unit. On average, the oligopolistic firms raise price over mariginal cost by between 1% and 15%. In the long run, marginal and average costs are equal, and deregulated prices are within 5% of regulated levels. Network location theoretic models, solved by linear programming, are also used to project deregulated prices. They explicitly incorporate spatial variations in demand functions, generation and transmission costs, and plant ownership. The resulting short run prices, when averaged across the region, closely resemble the planar model results. Results for the year 2000 are similar: deregulated rates, just above marginal cost, are greater than regulated prices for most consumers.

• OSTI ID: 6796273
• Country of Publication: United States
• Language: English

Related Subjects

20 FOSSIL-FUELED POWER PLANTS
200106 -- Fossil-Fueled Power Plants-- Economics
29 ENERGY PLANNING, POLICY, AND ECONOMY
296001* -- Energy Planning & Policy-- Electric Power Generation-- (-1989)
COMPETITION
COST
DEREGULATION
ELECTRIC POWER
ELECTRIC POWER INDUSTRY
FEDERAL REGION II
INDUSTRY
NEW YORK
NORTH AMERICA
POWER
POWER GENERATION
PRICES
RATE STRUCTURE
USA