Electricity Restructuring and Regulation in the Provinces: Ontario and Beyond
AbstractCompetitive electricity markets are artificial markets with extensive rules for all participants arising from the complex interconnections of the electricity network. Governments or regulatory agencies oversee the market design process and the operation and maintenance of the market, so market design is necessarily a political process. The conceptual design of the market must recognise the political forces that will operate on the market design process so that the political process will not thwart the intended outcome of the market as it has in some jurisdictions including Ontario. The limited ability of consumers to understand changes in the electricity sector in the short run poses a real constraint on what can be achieved politically. Letting the market set the price means that governments cannot ensure any particular future price level and both theory and experience tell us that prices may increase after restructuring (California, Ontario, Alberta). This makes it difficult to sell restructuring to consumers who will be interested in the price they pay and not much interested in abstractions like efficiency. Another challenge for electricity restructuring is that the starting points differ from one jurisdiction to another and the starting points matter. The problems are different if you begin with a crown monopoly than if you have investor-owned utilities; if expected prices are higher than recent prices rather than lower; if governments have been deeply involved in the electricity sector rather than distant from it; if the public has experience with stable electricity prices rather than fluctuating prices. Finally, the situation in neighbouring jurisdictions matters as well. Restructuring in a low-price jurisdiction surrounded by high prices will increase the prospect of price increases at home, while a high-price island is more likely to see its prices decline. If workable competition will be difficult to achieve at home, strong interties to neighbouring jurisdictions can improve competitive performance if the market is appropriately designed. Air pollution, like electricity, moves across borders, so one must assess and evaluate the pollution implications of competition and make any appropriate adjustments to the market design.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by University of Toronto, Department of Economics in its series Working Papers with number tecipa-205.
Length: 30 pages
Date of creation: 13 Feb 2006
Date of revision:
Contact details of provider:
Postal: 150 St. George Street, Toronto, Ontario
Phone: (416) 978-5283
electricity restructuring; electric utilities; market design; electricity price; electricity market; spot price; retail competition;
Find related papers by JEL classification:
- L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities
This paper has been announced in the following NEP Reports:
- NEP-ALL-2006-03-11 (All new papers)
- NEP-COM-2006-03-11 (Industrial Competition)
- NEP-ENE-2006-03-11 (Energy Economics)
- NEP-MIC-2006-03-11 (Microeconomics)
- NEP-REG-2006-03-11 (Regulation)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Paul L. Joskow, 2001.
"California's Electricity Crisis,"
Oxford Review of Economic Policy,
Oxford University Press, vol. 17(3), pages 365-388.
- Robert Wilson, 2002. "Architecture of Power Markets," Econometrica, Econometric Society, vol. 70(4), pages 1299-1340, July.
- Palmer, Karen & Ando, Amy, 1998. "Getting on the Map: The Political Economy of State-Level Electricity Restructuring," Discussion Papers dp-98-19-rev, Resources For the Future.
- Faruqui, Ahmad & George, Stephen S., 2002. "The Value of Dynamic Pricing in Mass Markets," The Electricity Journal, Elsevier, vol. 15(6), pages 45-55, July.
- Kahneman, Daniel & Tversky, Amos, 1979.
"Prospect Theory: An Analysis of Decision under Risk,"
Econometric Society, vol. 47(2), pages 263-91, March.
- Amos Tversky & Daniel Kahneman, 1979. "Prospect Theory: An Analysis of Decision under Risk," Levine's Working Paper Archive 7656, David K. Levine.
- George J. Stigler, 1971. "The Theory of Economic Regulation," Bell Journal of Economics, The RAND Corporation, vol. 2(1), pages 3-21, Spring.
- Aidt, Toke S., 1998. "Political internalization of economic externalities and environmental policy," Journal of Public Economics, Elsevier, vol. 69(1), pages 1-16, July.
- Severin Borenstein, 2002. "The Trouble With Electricity Markets: Understanding California's Restructuring Disaster," Journal of Economic Perspectives, American Economic Association, vol. 16(1), pages 191-211, Winter.
- Severin Borenstein & James B. Bushnell & Frank A. Wolak, 2002. "Measuring Market Inefficiencies in California's Restructured Wholesale Electricity Market," American Economic Review, American Economic Association, vol. 92(5), pages 1376-1405, December.
- Paul L. Joskow, 1997. "Restructuring, Competition and Regulatory Reform in the U.S. Electricity Sector," Journal of Economic Perspectives, American Economic Association, vol. 11(3), pages 119-138, Summer.
- Barker, Jr.J. & Tenenbaum, B. & Woolf, F., 1997. "Governance and Regulation of Power Pools and System Operators. An International Comparison," Papers 382, World Bank - Technical Papers.
- Becker, Gary S, 1983. "A Theory of Competition among Pressure Groups for Political Influence," The Quarterly Journal of Economics, MIT Press, vol. 98(3), pages 371-400, August.
- Michael J. Trebilcock & Roy Hrab, 2005. "Electricity Restructuring in Ontario," The Energy Journal, International Association for Energy Economics, vol. 0(Number 1), pages 123-146.
- Revesz, Richard L. & Stavins, Robert N., 2007. "Environmental Law," Handbook of Law and Economics, Elsevier.
- S. Baranzoni & P. Bianchi & L. Lambertini, 2000. "Market Structure," Working Papers 368, Dipartimento Scienze Economiche, Universita' di Bologna.
- Donald N Dewees, 2006.
"Pollution and the Price of Power,"
tecipa-246, University of Toronto, Department of Economics.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (RePEc Maintainer).
If references are entirely missing, you can add them using this form.