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Price and Environment in Electricity Restructuring

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  • Donald N. Dewees

Abstract

One purpose of electricity restructuring is to create a market in which prices reflect costs to which both generators and consumers may respond efficiently. Yet in many jurisdictions, spot prices may be quite volatile, and both consumers and generators of electricity have made it clear that they do not prices that are highly volatile. This paper examines price plans that have been and might be used in restructured electricity markets assessing their ability to face consumers with efficient prices at the margin but to minimize their exposure to volatility, considering the welfare losses that may be associated with them. It notes that electricity markets are necessarily artificial and that few have managed to create price plans that seem to improve on the efficiency of pre-restructuring prices. Moreover in the California market, the operation of a separate market for air pollution emissions gave rise to emission prices far above reasonable estimates of environmental harm, further exacerbating wholesale price fluctuations in 2000. Solutions to these problems are explored.

Suggested Citation

  • Donald N. Dewees, 2003. "Price and Environment in Electricity Restructuring," Working Papers dewees-01-01, University of Toronto, Department of Economics.
  • Handle: RePEc:tor:tecipa:dewees-01-01
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    References listed on IDEAS

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    1. Paul L. Joskow & Richard Schmalensee, 1988. "Markets for Power: An Analysis of Electrical Utility Deregulation," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262600188, January.
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    4. David M. Newbery, 1998. "Competition, Contracts, and Entry in the Electricity Spot Market," RAND Journal of Economics, The RAND Corporation, vol. 29(4), pages 726-749, Winter.
    5. Richard A. Bilas & Kenneth L. Lay & Gordon R. Smith & Michal C. Moore & Robert J. Michaels, 1999. "Power Markets: Restructuring Electricity," Contemporary Economic Policy, Western Economic Association International, vol. 17(1), pages 1-19, January.
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    12. Thomas, Vinod, 1980. "Welfare cost of pollution control," Journal of Environmental Economics and Management, Elsevier, vol. 7(2), pages 90-102, June.
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    More about this item

    Keywords

    electric utilities; electricity restructuring; air pollution; spot market; price volatility; price structure; Ontario;

    JEL classification:

    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • K23 - Law and Economics - - Regulation and Business Law - - - Regulated Industries and Administrative Law

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