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Alleged Transmission Undersupply: Is Restructuring the Cure or the Cause?

  • Brennan, Timothy

    ()

    (Resources for the Future)

Widespread concern over transmission capacity requires theoretical support to infer inadequacy from observed trends indicating reductions in the ratio of transmission to generation capacity over time. If integrated utilities had been regulated with allowed returns exceeding capital costs, transmission-generation ratios would have been excessive, and observed trends might be a correction. However, numerous commentators claim that post-restructuring transmission rates have been too low, with NIMBY also discouraging investment. We model the possibility that inadequate separation between generation and transmission may result in reduced investment, in order to preserve incumbent market power in generation. However, consideration of transmission price caps and coordinated generation investment support other analyses that conclude that vertical separation itself may be a culprit.

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Paper provided by Resources For the Future in its series Discussion Papers with number dp-05-50.

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Date of creation: 31 Oct 2005
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Handle: RePEc:rff:dpaper:dp-05-50
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  1. Moss, Diana L., 2004. "Competition or Reliability in Electricity? What the Coming Policy Shift Means for Restructuring," The Electricity Journal, Elsevier, vol. 17(2), pages 11-28, March.
  2. Reiffen, David, 1998. "A Regulated Firm's Incentive to Discriminate: A Reevaluation and Extension of Weisman's Result," Journal of Regulatory Economics, Springer, vol. 14(1), pages 79-86, July.
  3. Joskow, Paul L & Tirole, Jean, 1999. "Transmission Rights and Market Power on Electric Power Networks I: Financial Rights," CEPR Discussion Papers 2093, C.E.P.R. Discussion Papers.
  4. Buehler, Stefan & Schmutzler, Armin & Benz, Men-Andri, 2004. "Infrastructure quality in deregulated industries: is there an underinvestment problem?," International Journal of Industrial Organization, Elsevier, vol. 22(2), pages 253-267, February.
  5. Stagliano, Vito & Hayden, Jolly, 2004. "The Electric Transmission Paradox," The Electricity Journal, Elsevier, vol. 17(2), pages 37-46, March.
  6. Hogan, William W, 1992. "Contract Networks for Electric Power Transmission," Journal of Regulatory Economics, Springer, vol. 4(3), pages 211-42, September.
  7. Kaserman, David L & Mayo, John W, 1991. "The Measurement of Vertical Economies and the Efficient Structure of the Electric Utility Industry," Journal of Industrial Economics, Wiley Blackwell, vol. 39(5), pages 483-502, September.
  8. William J. Baumol & Alvin K. Klevorick, 1970. "Input Choices and Rate-of Return Regulation: An Overview of the Discussion," Bell Journal of Economics, The RAND Corporation, vol. 1(2), pages 162-190, Autumn.
  9. Michaels, Robert J., 2004. "Vertical Integration: The Economics that Electricity Forgot," The Electricity Journal, Elsevier, vol. 17(10), pages 11-23, December.
  10. Pittman Russell, 2005. "Structural Separation to Create Competition? The Case of Freight Railways," Review of Network Economics, De Gruyter, vol. 4(3), pages 1-16, September.
  11. Weisman, Dennis L, 1995. "Regulation and the Vertically Integrated Firm: The Case of RBOC Entry into Interlata Long Distance," Journal of Regulatory Economics, Springer, vol. 8(3), pages 249-66, November.
  12. Fox-Penner, Peter, 2005. "Rethinking the Grid: Avoiding More Blackouts and Modernizing the Power Grid Will Be Harder than You Think," The Electricity Journal, Elsevier, vol. 18(2), pages 28-42, March.
  13. Brennan, Timothy J, 1989. "Regulating by Capping Prices," Journal of Regulatory Economics, Springer, vol. 1(2), pages 133-47, June.
  14. Shmuel S. Oren, 1997. "Economic Inefficiency of Passive Transmission Rights in Congested Electricity Systems with Competitive Generation," The Energy Journal, International Association for Energy Economics, vol. 0(Number 1), pages 63-83.
  15. Kwoka, John E., 2002. "Vertical economies in electric power: evidence on integration and its alternatives," International Journal of Industrial Organization, Elsevier, vol. 20(5), pages 653-671, May.
  16. Martzoukos, Spiros H. & Teplitz-Sembitzky, Witold, 1992. "Optimal timing of transmission line investments in the face of uncertain demand : An option valuation approach," Energy Economics, Elsevier, vol. 14(1), pages 3-9, January.
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