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Deregulation in the Electric Utility Industry: Excess Capacity and the Transition to a Long‐Run Competitive Market

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  • Eric Thompson
  • Frank Scott
  • Mark Berger

Abstract

ABSTRACT Existing analyses of electricity deregulation have focused on situations where horizontal market power is present. This paper instead evaluates a market where a competitive outcome is more likely. Competitive market supply and demand curves for electricity have been simulated for a twenty‐state region. These simulated supply and demand curves are used to predict short‐run and long‐run prices for electric power. Many consumers will see a drop in the portion of their electric bills accounted for by the current economic costs of supplying them with electricity. Adjustments to consumers’ bills for stranded cost recovery will be determined by legislators and regulators on a state‐by‐state and utility‐by‐utility basis. Because of excess capacity that currently exists in the industry, the decline in prices will be greater in the short run than in the long run.

Suggested Citation

  • Eric Thompson & Frank Scott & Mark Berger, 2004. "Deregulation in the Electric Utility Industry: Excess Capacity and the Transition to a Long‐Run Competitive Market," Growth and Change, Wiley Blackwell, vol. 35(1), pages 1-20, February.
  • Handle: RePEc:bla:growch:v:35:y:2004:i:1:p:1-20
    DOI: 10.1111/j.0017-4815.2004.00235.x
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    File URL: https://doi.org/10.1111/j.0017-4815.2004.00235.x
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    1. Ando, Amy Whritenour & Palmer, Karen L., 1998. "Getting on the Map: The Political Economy of State-Level Electricity Restructuring," Discussion Papers 10643, Resources for the Future.
    2. Bolle, Friedel, 1992. "Supply function equilibria and the danger of tacit collusion : The case of spot markets for electricity," Energy Economics, Elsevier, vol. 14(2), pages 94-102, April.
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