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Residential Consumer Switching and Electricity Restructuring Policy: The Pennsylvania Power Market

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  • Chien-Ping Chen

Abstract

Without significant price reduction, high consumer switching rates to competitive power suppliers have been criticized as a result of either the artificially high price to compare (PC) acting as the benchmark price that competitive generators must meet, or the critical mass effect from switching consumers. This paper builds a simple model to explore how the restructuring policy determines residential switching behavior. When the PC increases over time, whether it reflects the rising wholesale price adequately or not, a consistent price reduction policy will naturally induce an early-stage high switching rate. In contrast, a required switching rate policy that is associated with both an artificial price cut at the early stage and a longer period of stranded cost recovery can accelerate switching effectively. Two high-cost Pennsylvania utilities, which demonstrate opposite movements of residential switching rate under different restructuring policies, are examined to confirm that the high switching rate just results from the policy design, not from the subsidy in PC discussed in (Joskow, Paul L. “Why Do We Need Electricity Retailers? Or, Can You Get It Cheaper Wholesale?” Center for Energy and Environmental Policy Research, MIT, Revised discussion draft, 2000b), or the critical mass effect concluded in (Reitzes, James D., Lisa V. Wood, J. A. Quinn, and Kelli L. Sheran. “Designing Standard-Offer Service to Facilitate Electric Retail Restructuring.” The Electricity Journal 15, 9, 2003, pp. 34–51). Switching rates play no role in evaluating the success or failure of a restructuring. Copyright International Atlantic Economic Society 2005

Suggested Citation

  • Chien-Ping Chen, 2005. "Residential Consumer Switching and Electricity Restructuring Policy: The Pennsylvania Power Market," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 33(3), pages 311-323, September.
    • Handle: RePEc:kap:atlecj:v:33:y:2005:i:3:p:311-323
    DOI: 10.1007/s11293-005-0028-x
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    References listed on IDEAS

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    1. Littlechild, Stephen C, 2003. "Wholesale Spot Price Pass-Through," Journal of Regulatory Economics, Springer, vol. 23(1), pages 61-91, January.
    2. Berry, S. Keith, 2002. "Generation search costs and Ramsey pricing in a partially deregulated electric utility industry," Journal of Economics and Business, Elsevier, vol. 54(3), pages 331-343.
    3. Faye Steiner, 2004. "The Market Response to Restructuring: A Behavioral Model," Journal of Regulatory Economics, Springer, vol. 25(1), pages 59-80, January.
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    JEL classification:

    • L5 - Industrial Organization - - Regulation and Industrial Policy
    • L9 - Industrial Organization - - Industry Studies: Transportation and Utilities

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