Economics, Competition, and Costs in the Resructuring of U.S. Electricity Markets

Economics, Competition, and Costs in the Resructuring of U.S. Electricity Markets Many of the problems facing U.S. electricity markets stem from blatant disregard for the advice and warnings of economists who specialize in these markets. The short list of disregarded economic advice includes existing market power of some generators; transmission discrimination, lack of efficient pricing of transmission congestion; inefficient retail prices; anemic incentives to minimize costs; and lack of consumer choice and experience, occasionally coupled with high switching costs. As uncomfortable as the current state of electric power restructuring may be, going back to full regulation likely would be worse. There is reason to hope that less direct paths to increased competition will resolve some of the worst policy patches and half-reforms. These less direct paths to increased competition include expansion of the size of geographic markets, geographic expansion of transmission unbundling, reductions in obstacles to long-term supply contracting, growth of demand response programs, improvements in generator efficiency and availability, and expansion of real-time pricing and customized energy services for commercial and industrial customers. In aggregate, these constitute a promising “quiet phase” of electric power reform. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Review of Industrial Organization Springer Journals

Economics, Competition, and Costs in the Resructuring of U.S. Electricity Markets

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Publisher
Springer Journals
Copyright
Copyright © 2008 by Springer Science+Business Media, LLC.
Subject
Economics; Industrial Organization; Microeconomics
ISSN
0889-938X
eISSN
1573-7160
D.O.I.
10.1007/s11151-008-9175-y
Publisher site
See Article on Publisher Site

Abstract

Many of the problems facing U.S. electricity markets stem from blatant disregard for the advice and warnings of economists who specialize in these markets. The short list of disregarded economic advice includes existing market power of some generators; transmission discrimination, lack of efficient pricing of transmission congestion; inefficient retail prices; anemic incentives to minimize costs; and lack of consumer choice and experience, occasionally coupled with high switching costs. As uncomfortable as the current state of electric power restructuring may be, going back to full regulation likely would be worse. There is reason to hope that less direct paths to increased competition will resolve some of the worst policy patches and half-reforms. These less direct paths to increased competition include expansion of the size of geographic markets, geographic expansion of transmission unbundling, reductions in obstacles to long-term supply contracting, growth of demand response programs, improvements in generator efficiency and availability, and expansion of real-time pricing and customized energy services for commercial and industrial customers. In aggregate, these constitute a promising “quiet phase” of electric power reform.

Journal

Review of Industrial OrganizationSpringer Journals

Published: Aug 7, 2008

References

  • Beyond ‘virtual’: EU ready to push real unbundling

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