The Effects of Rivalry with Price Regulation of Electric Power Generation

Ronald R Braeutigam

Journal of Regulatory Economics, 1997, vol. 11, issue 2, 119-37

Abstract: This article examines how rivalry between an electric utility and nonutility generators (NUGs) affects electricity prices, market structure and welfare. If a utility cannot break even financially when outputs are priced at marginal cost, then the Ramsey optimal price paid by a utility purchasing electricity from a NUG should be below avoided cost, in contrast to the requirements of PURPA. The analysis also compares FDC, Residual and Ramsey prices for a utility's electricity sales. It illustrates how FDC prices may force a utility to exit relatively competitive business markets, eliminating any benefits of economies of scope from serving both business and residential customers. Copyright 1997 by Kluwer Academic Publishers

Date: 1997
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