Alleged Transmission Undersupply: Is Restructuring the Cure or the Cause?
AbstractWidespread concern over transmission capacity requires theoretical support to infer inadequacy from observed trends indicating reductions in the ratio of transmission to generation capacity over time. If integrated utilities had been regulated with allowed returns exceeding capital costs, transmission-generation ratios would have been excessive, and observed trends might be a correction. However, numerous commentators claim that post-restructuring transmission rates have been too low, with NIMBY also discouraging investment. We model the possibility that inadequate separation between generation and transmission may result in reduced investment, in order to preserve incumbent market power in generation. However, consideration of transmission price caps and coordinated generation investment support other analyses that conclude that vertical separation itself may be a culprit.
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Bibliographic InfoPaper provided by Resources For the Future in its series Discussion Papers with number dp-05-50.
Date of creation: 31 Oct 2005
Date of revision:
electricity transmission; regulation; deregulation; vertical integration;
Find related papers by JEL classification:
- L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities
- L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
- L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
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