Imperfect Markets Versus Imperfect Regulation In Us Electricity Generation PDF Download
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Author | : Steve Cicala |
Publisher | : |
Total Pages | : 59 |
Release | : 2017 |
Genre | : Electric power production |
ISBN | : |
Download Imperfect Markets Versus Imperfect Regulation in U.S. Electricity Generation Book in PDF, ePub and Kindle
This paper measures changes in electricity generation costs caused by the introduction of market mechanisms to determine output decisions in service areas that were previously using command-and-control-type operations. I use the staggered transition to markets from 1999-2012 to evaluate the causal impact of liberalization using a nationwide panel of hourly data on electricity demand and unit-level costs, capacities, and output. To address the potentially confounding effects of unrelated fuel price changes, I use machine learning methods to predict the allocation of output to generating units in the absence of markets for counterfactual production patterns. I find that markets reduce production costs by $3B per year by reallocating output among existing power plants: Gains from trade across service areas increase by 20% based on a 10% increase in traded electricity, and costs from using uneconomical units fall 20% from a 10% reduction in their operation.
Author | : Thomas-Olivier Leautier |
Publisher | : MIT Press |
Total Pages | : 413 |
Release | : 2019-03-19 |
Genre | : Business & Economics |
ISBN | : 0262039281 |
Download Imperfect Markets and Imperfect Regulation Book in PDF, ePub and Kindle
The first textbook to present a comprehensive and detailed economic analysis of electricity markets, analyzing the tensions between microeconomics and political economy. The power industry is essential in our fight against climate change. This book is the first to examine in detail the microeconomics underlying power markets, stemming from peak-load pricing, by which prices are low when the installed generation capacity exceeds demand but can rise a hundred times higher when demand is equal to installed capacity. The outcome of peak-load pricing is often difficult to accept politically, and the book explores the tensions between microeconomics and political economy. Understanding peak-load pricing and its implications is essential for designing robust policies and making sound investment decisions. Thomas-Olivier Léautier presents the model in its simplest form, and introduces additional features as different issues are presented. The book covers all segments of electricity markets: electricity generation, under perfect and imperfect competition; retail competition and demand response; transmission pricing, transmission congestion management, and transmission constraints; and the current policy issues arising from the entry of renewables into the market and capacity mechanisms. Combining anecdotes and analysis of real situations with rigorous analytical modeling, each chapter analyzes one specific issue, first presenting findings in nontechnical terms accessible to policy practitioners and graduate students in management or public policy and then presenting a more mathematical analytical exposition for students and researchers specializing in the economics of electricity markets and for those who want to understand and apply the underlying models.
Author | : Thomas-Olivier Nasser |
Publisher | : |
Total Pages | : 232 |
Release | : 1997 |
Genre | : |
ISBN | : |
Download Imperfect Markets for Power, Competition and Residual Regulation in the Electricity Industry Book in PDF, ePub and Kindle
Author | : Geoffrey S. Rothwell |
Publisher | : Wiley-IEEE Press |
Total Pages | : 312 |
Release | : 2003-02-14 |
Genre | : Business & Economics |
ISBN | : |
Download Electricity Economics Book in PDF, ePub and Kindle
Written originally as a manual for the Federal Energy Commission to train regional rate regulators, this is a clear, comprehensive primer on the principles of economics and finance underlying the regulation of electricity markets and the deregulation of electricity generation.
Author | : Nancy L. Rose |
Publisher | : University of Chicago Press |
Total Pages | : 619 |
Release | : 2014-08-29 |
Genre | : Business & Economics |
ISBN | : 022613816X |
Download Economic Regulation and Its Reform Book in PDF, ePub and Kindle
The past thirty years have witnessed a transformation of government economic intervention in broad segments of industry throughout the world. Many industries historically subject to economic price and entry controls have been largely deregulated, including natural gas, trucking, airlines, and commercial banking. However, recent concerns about market power in restructured electricity markets, airline industry instability amid chronic financial stress, and the challenges created by the repeal of the Glass-Steagall Act, which allowed commercial banks to participate in investment banking, have led to calls for renewed market intervention. Economic Regulation and Its Reform collects research by a group of distinguished scholars who explore these and other issues surrounding government economic intervention. Determining the consequences of such intervention requires a careful assessment of the costs and benefits of imperfect regulation. Moreover, government interventions may take a variety of forms, from relatively nonintrusive performance-based regulations to more aggressive antitrust and competition policies and barriers to entry. This volume introduces the key issues surrounding economic regulation, provides an assessment of the economic effects of regulatory reforms over the past three decades, and examines how these insights bear on some of today’s most significant concerns in regulatory policy.
Author | : Thomas-Olivier Leautier |
Publisher | : MIT Press |
Total Pages | : 413 |
Release | : 2019-03-19 |
Genre | : Business & Economics |
ISBN | : 0262351048 |
Download Imperfect Markets and Imperfect Regulation Book in PDF, ePub and Kindle
The first textbook to present a comprehensive and detailed economic analysis of electricity markets, analyzing the tensions between microeconomics and political economy. The power industry is essential in our fight against climate change. This book is the first to examine in detail the microeconomics underlying power markets, stemming from peak-load pricing, by which prices are low when the installed generation capacity exceeds demand but can rise a hundred times higher when demand is equal to installed capacity. The outcome of peak-load pricing is often difficult to accept politically, and the book explores the tensions between microeconomics and political economy. Understanding peak-load pricing and its implications is essential for designing robust policies and making sound investment decisions. Thomas-Olivier Léautier presents the model in its simplest form, and introduces additional features as different issues are presented. The book covers all segments of electricity markets: electricity generation, under perfect and imperfect competition; retail competition and demand response; transmission pricing, transmission congestion management, and transmission constraints; and the current policy issues arising from the entry of renewables into the market and capacity mechanisms. Combining anecdotes and analysis of real situations with rigorous analytical modeling, each chapter analyzes one specific issue, first presenting findings in nontechnical terms accessible to policy practitioners and graduate students in management or public policy and then presenting a more mathematical analytical exposition for students and researchers specializing in the economics of electricity markets and for those who want to understand and apply the underlying models.
Author | : Carl Pechman |
Publisher | : Springer |
Total Pages | : 229 |
Release | : 2011-09-30 |
Genre | : Business & Economics |
ISBN | : 9781461532590 |
Download Regulating Power: The Economics of Electrictiy in the Information Age Book in PDF, ePub and Kindle
Modem industrial society functions with the expectation that electricity will be available when required. By law, electric utilities have the obligation to provide electricity to customers in a "safe and adequate" manner. In exchange for this obligation, utilities are granted a monopoly right to provide electricity to customers within well-defmed service territories. However, utilities are not unfettered in their monopoly power; public utility commissions regulate the relationship between a utility and its customers and limit profits to a "fair rate of return on invested capital. " From its inception through the late 1970s, the electric utility industry's opera tional paradigm was to continue marketing electricity to customers and to build power plants to meet customer needs. This growth was facilitated by a U. S. energy policy predicated upon the assumption that sustained electric growth was causally linked to social welfare (Lovins, 1977). The electric utility industry is now in transition from a vertically integrated monopoly to a more competitive market. Of the three primary components (generation, transmission, and distribution) of the traditional vertically integrated monopoly, generation is leading this transformation. The desired outcome is a more efficient market for the provision of electric service, ultimately resulting in lower costs to customers. This book focuses on impediments to this transformation. In partiCUlar, it argues that information control is a form of market power that inhibits the evolution of the market. The analysis is presented within the context of the transformation of the U. S.
Author | : Akshaya Jha |
Publisher | : |
Total Pages | : |
Release | : 2015 |
Genre | : |
ISBN | : |
Download Regulatory Distortions in Energy Book in PDF, ePub and Kindle
In this dissertation, I explore the costs and benefits of regulatory versus market price setting mechanisms for electricity generation in the United States. This paper is split into two sections. I devote the first section to studying the costs of regulatory distortions in input procurement for U.S coal-fired power plants. The second section (joint with Frank Wolak) quantifies the efficiency gains associated with the introduction of financial trading in California's wholesale electricity markets. In Chapter 1, I begin with the following puzzling fact: during my 1983-1997 sample period, electric utilities subject to output price regulation purchase much of their input coal via long-term contracts, consistently paying contract prices in excess of expected spot market prices. I argue that regulators are less likely to pass through high coal procurement cost realizations to consumers, inducing expected profit maximizing firms under output price regulation to express a willingness to pay for both a lower mean and a lower variance in costs ("as if"' risk aversion). I show descriptively that plants facing higher spot price uncertainty sign coal contracts with a longer duration, and purchase a higher proportion of their required coal from these contracts relative to the spot market. At their observed contracting proportions, I find that plants on average are willing to trade off a 0.22% increase in mean procurement costs for a 10% reduction in the variance of costs. If plants counterfactually purchase all of their required coal from the spot market, I find a roughly 10.5% ($87 million per month over plants) decrease in mean coal procurement costs. However, this reduction in mean costs comes with a significant increase in the variance of costs; even if plants were willing to double their variance in costs, we would only see a 1.7% reduction in mean costs. Policymakers and regulators often argue that there are benefits associated with decreased volatility in input costs; this paper provides the increase in expected costs associated with decreased volatility to be weighed against these benefits. In Chapter 2, I quantify the dynamic productive efficiency gains in input procurement associated with introducing market mechanisms into a formerly price regulated industry. I do so within the context of the U.S coal-fired power generation sector from 1983-2012. I formulate and estimate a dynamic plant-level model of coal purchase and storage decisions. Holding constant the plant's pattern of input prices and output, I find that it costs a regulated plant roughly 3% more per month to procure and store coal relative to the same plant facing market prices. This amounts to roughly $35 million per month saved in procurement costs if all price-regulated coal-fired plants in the U.S instead faced market prices. This regulatory distortion stems both from the fact that the structure of output price regulation: 1) passes through all prudently incurred coal purchases, and 2) provides a working capital allowance for inventories held on-site. Empirically, I find that the first source is more important; changes in when and how much coal a plant buys under output price regulation explains more of the 3% regulatory distortion relative to changes in the level of inventories held. One of the primary concerns regarding output price regulation has been distortions in the level of investment due to the regulated return provided on capital; my findings indicate that regulatory distortions to the timing of capital investments may be costlier. Finally, I switch gears in Chapter 3; with Frank Wolak, I develop an empirical test for the existence of arbitrage with transactions costs and use this test to study the introduction of financial trading in California's wholesale electricity markets. I begin by noting that, with risk neutral traders and zero transactions costs, the expected value of the difference between the current forward price and the spot price of a commodity at the delivery date of the forward contract should be zero. Accounting for the transactions costs associated with trading in these two markets invalidates this result. We develop statistical tests of the null hypothesis that profitable trading strategies exploiting systematic differences between spot and forward market prices exist in the presence of trading costs. We implement these tests using the day-ahead forward and real-time locational marginal prices from California's wholesale electricity market and use them to construct an estimate of the variable cost of trading in this market. During our sample period, we observe the introduction of convergence bidding, which was aimed at reducing the costs associated with exploiting differences between forward and spot prices. Our measures of trading costs are significantly smaller after the introduction of convergence bidding. Estimated trading costs are lower for generation nodes relative to non-generation nodes before explicit virtual bidding and trading costs fell more for non-generation nodes after explicit virtual bidding, eliminating any difference in trading costs across the two types of nodes. We also present evidence that the introduction of convergence bidding reduced the total amount of input fossil fuel energy required to generate the thermal-based electricity produced in California and the total variable of costs of producing this electrical energy. Taken together, these results demonstrate that purely financial forward market trading can improve the operating efficiency of short-term commodity markets.
Author | : Kira Markiewicz |
Publisher | : |
Total Pages | : 0 |
Release | : 2004 |
Genre | : |
ISBN | : |
Download Do Markets Reduce Costs? Assessing the Impact of Regulatory Restructuring on U.S. Electric Generation Efficiency Book in PDF, ePub and Kindle
While neoclassical models assume static cost-minimization by firms, agency models suggest that firms may not minimize costs in less-competitive or regulated environments. We test this using a transition from cost-of-service regulation to market-oriented environments for many U.S. electric generating plants. Our estimates of input demand suggest that publicly-owned plants, whose owners were largely insulated from these reforms, experienced the smallest efficiency gains, while investor-owned plants in states that restructured their wholesale electricity markets improved the most. The results suggest modest medium-term efficiency benefits from replacing regulated monopoly with a market-based industry structure.
Author | : Paul L. Joskow |
Publisher | : MIT Press (MA) |
Total Pages | : 269 |
Release | : 1988-08-01 |
Genre | : Business & Economics |
ISBN | : 9780262600187 |
Download Markets for Power Book in PDF, ePub and Kindle
This timely study evaluates four generic proposals for allowing free market forces toreplace government regulation in the electric power industry and concludes that none of thederegulation alternatives considered represents a panacea for the performance failures associatedwith things as they are now. It proposes a balanced program of regulatory reform and deregulationthat promises to improve industry performance in the short run, resolve uncertainties about thecosts and benefits of deregulation, and positions the industry for more extensive deregulation inthe long run should interim experimentation with deregulation, structural, and regulatory reformsmake it desirable.The book integrates modern microeconomic theory with a comprehensive analysis ofthe economic, technical, and institutional characteristics of modern electrical power systems. Itemphasizes that casual analogies to successful deregulation efforts in other sectors of the economyare an inadequate and potentially misleading basis for public policy in the electric power industry,which has economic and technical characteristics that are quite different from those in otherderegulated industries.Paul L. Joskow is Professor of Economics at MIT, author of ControllingHospital Costs (MIT Press 1981) and coauthor with Martin L. Baughman and Dilip P. Kamat of ElectricPower in the United States (MIT Press 1979). Richard Schmalensee, also at MIT, is Professor ofApplied Economics, author of The Economics of Advertising and The Control of Natural Monopolies, andeditor of The MIT Press Series, Regulation of Economic Activity.