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Price and Environment in Electricity Restructuring

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  • Donald N. Dewees

Abstract

One purpose of electricity restructuring is to create a market in which prices reflect costs to which both generators and consumers may respond efficiently. Yet in many jurisdictions, spot prices may be quite volatile, and both consumers and generators of electricity have made it clear that they do not prices that are highly volatile. This paper examines price plans that have been and might be used in restructured electricity markets assessing their ability to face consumers with efficient prices at the margin but to minimize their exposure to volatility, considering the welfare losses that may be associated with them. It notes that electricity markets are necessarily artificial and that few have managed to create price plans that seem to improve on the efficiency of pre-restructuring prices. Moreover in the California market, the operation of a separate market for air pollution emissions gave rise to emission prices far above reasonable estimates of environmental harm, further exacerbating wholesale price fluctuations in 2000. Solutions to these problems are explored.

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Bibliographic Info

Paper provided by University of Toronto, Department of Economics in its series Working Papers with number dewees-01-01.

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Length: 35 pages
Date of creation: 23 Aug 2003
Date of revision:
Handle: RePEc:tor:tecipa:dewees-01-01

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Keywords: electric utilities; electricity restructuring; air pollution; spot market; price volatility; price structure; Ontario;

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  10. Borenstein, Severin, 2001. "The Trouble With Electricity Markets (and some solutions)," Working paper 394, Regulation2point0.
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  15. Fortin, Pierre & Keil, Manfred & Symons, James, 2001. "The Sources of Unemployment in Canada, 1967-91: Evidence from a Panel of Regions and Demographic Groups," Oxford Economic Papers, Oxford University Press, vol. 53(1), pages 67-93, January.
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