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Regulatory Regimes in the Electric Power Industry: Implications for Capacity

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  • Gal-Or, Esther
  • Spiro, Michael H

Abstract

The authors construct a model of the electric power industry which consists of two utilities faced with uncertain demand and a variety of regulatory regimes. Two technologies are considered, base-load and peaking, and the transfer of bulk electricity among utilities is permitted. The purpose of the paper is not to determine optimal regulatory regimes but to provide a framework for analyzing existing and contemplated regulatory initiatives. The conclusions are that long run survival mandates an authorized rate of return above the cost of capital and that excess investment will result. Furthermore, it is highly unlikely that current regulatory instruments such as "Used and Useful," distribution of profits from bulk sales, and pricing of wholesale electricity can lead to a socially optimal capital stock. Copyright 1992 by Kluwer Academic Publishers

Suggested Citation

  • Gal-Or, Esther & Spiro, Michael H, 1992. "Regulatory Regimes in the Electric Power Industry: Implications for Capacity," Journal of Regulatory Economics, Springer, vol. 4(3), pages 263-278, September.
    • Handle: RePEc:kap:regeco:v:4:y:1992:i:3:p:263-78
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    Cited by:

    1. Ana Espinola-Arredondo & Felix Munoz-Garcia & Dolores Garrido, 2023. "Measuring regulatory errors from environmental policy uncertainty," Journal of Regulatory Economics, Springer, vol. 64(1), pages 48-65, December.
    2. Rahmatallah Poudineh & Tooraj Jamasb, 2013. "Investment and Efficiency under Incentive Regulation: The Case of the Norwegian Electricity Distribution Networks," Working Papers EPRG 1306, Energy Policy Research Group, Cambridge Judge Business School, University of Cambridge.
    3. Rahmatallah Poudineh and Tooraj Jamasb, 2015. "A New Perspective: Investment and Efficiency under Incentive Regulation," The Energy Journal, International Association for Energy Economics, vol. 0(Number 4).
    4. Stratford Douglas & Thomas A. Garrett & Russell M. Rhine, 2009. "Disallowances and overcapitalization in the U.S. electric utility industry," Review, Federal Reserve Bank of St. Louis, vol. 91(Jan), pages 23-32.
    5. Espinola-Arredondo, Ana & Munoz-Garcia, Felix, 2021. "Abolishing Environmental Regulation: Strategic E§ects and Welfare Implications," Working Papers 2018-7, School of Economic Sciences, Washington State University.

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