Why opportunity costs are not legitimate
Commissions must deny proposals for firm transmission service that contain opportunity-cost provisions, as such provisions merely extract monopoly profits from third-party users. An opportunity-cost pricing provision or [open quotes]lost-opportunity[close quotes] charge for third-party firm transmission services does not represent good rate making because: It is not based on actual cost of service; Such costs defy identification and accurate measurement, and thereby create the potential for inefficient bulk power purchase decisions where the services are mispriced; It allows transmission-owning monopolists to extract [open quotes]economic rents[close quotes] from third-party users of the system, thereby harming other utilities' native-load customers; It allows for a form of [open quotes]double-dipping[close quotes], i.e., generation of profits from both third-party use and additional profits from any potential economy transactions foregone by third-party use - here, opportunity-cost provisions for firm transmission service are a clear example of a utility's exercise of monopoly power over essential transmission facilities.
- OSTI ID:
- 7279719
- Journal Information:
- Fortnightly; (United States), Journal Name: Fortnightly; (United States) Vol. 129:3; ISSN FRTNE8
- Country of Publication:
- United States
- Language:
- English
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