Efficient pricing of private power supply under the Public Utilities Regulatory Policies Act

Thesis/Dissertation · Wed Jan 01 04:00:00 EST 1992

OSTI ID:7236800

Bittenbender, S L

The Public Utilities Regulatory Policies Act of 1978 (PURPA) began a new era in electric utility regulation by creating a new class of power producers that operate free from traditional cost-of-service regulation but sell their power to conventionally regulated public utilities. The Act specified that the utility should pay an administratively-determined avoided-cost price equal to all costs it saved by purchasing private power. The author discusses the efficiency implications of avoided-cost pricing, considers a methodology for determining efficient avoided-cost prices and examines actual prices at which power was transacted to assess, ex post, their efficiency. The findings identify variables that influence the magnitude of an efficient avoided-cost payment, including the load level prevailing when the power is supplied, the commitment level of the supplier's contract with the utility and the utility's level of capacity saturation. Some states appear to make payments outside the efficient price parameters even after adjusting for variables not included in the parameters. In 1988, the Federal Energy Regulatory Commission issued a ruling which encouraged states to use bidding to select and price private power supply contracts. Some of the strategic issues are examined that arise in this new regime. The model developed suggests that bidders will find it profitable to raise their bids above those they would place in a static auction when they instead participate in a dynamic auction characterized by repeated rounds of bidding in which bidders drop out of the bidding after winning a contract. While this bid inflation reduces some of the distributive properties anticipated with competitive bidding, the model does demonstrate that contracts for private power supply are awarded efficiently under competitive bidding, whereas there is no guarantee of efficiency under the first-come, first-served rule applied under avoided-cost pricing.

• Research Organization: Harvard Univ., Boston, MA (United States)
• OSTI ID: 7236800
• Country of Publication: United States
• Language: English

Related Subjects

24 POWER TRANSMISSION AND DISTRIBUTION
240700 -- Power Transmission & Distribution-- Economic
Industrial & Business Aspects-- (1990-)
29 ENERGY PLANNING, POLICY, AND ECONOMY
290201 -- Energy Planning & Policy-- Economics-- (1992-)
296000* -- Energy Planning & Policy-- Electric Power
BIDS
ELECTRIC POWER
ELECTRIC UTILITIES
LAWS
NATIONAL ENERGY ACTS
POWER
PRICING REGULATIONS
PROFITS
PUBLIC UTILITIES
RATE STRUCTURE
REGULATIONS
STATE GOVERNMENT
US PUBLIC UTILITY REGULATORY POLICIES ACT