Scale Economies and Reliability in the Electric Power Industry

Studies concerning scale economies in the electric power industry have focused on a wide range of variables relevant to possible ways of increasing the nation's electricity generating capacity. In terms of scale economies per se, results from economic studies have supported current trends toward the construction of increasingly large generating units (Abdulkarim and Lucas 1977; Lomas 1952; and Ling 1964). Economies of scale for generating units and generating plants are attributed to such factors as nonproportionalities between plant capacity and site costs, lesser leakages and power losses obtained in larger generating units, operating and maintenance costs that increase less than proportionally with unit size, scale economies in coal-handling facilities, and economies in transmission (see particularly Lomas 1952; Ling 1964; Cicchetti, Gillen, and Smolansky 1977)) Ramifications of scale economies have been expanded to include such things as technological change (Barzel 1974, Dhrymes and Kurz 1964), interfuel substitutions (Atkinson and Halvorsen 1976) and regulatory aspects (Averch and Johnson 1962; Joskow 1974).