The Competitive Effects of Transmission Capacity in a Deregulated Electricity Industry

48 Pages Posted: 27 Jun 2000 Last revised: 12 Sep 2022

See all articles by Severin Borenstein

Severin Borenstein

University of California, Berkeley - Economic Analysis & Policy Group; National Bureau of Economic Research (NBER)

James Bushnell

University of California - Energy Institute; University of California, Berkeley - Department of Industrial Engineering & Operations Research (IEOR)

Steven Stoft

Retired Economist

Multiple version iconThere are 2 versions of this paper

Date Written: November 1997

Abstract

In an unregulated electricity generation market, the degree to which generators in" different locations compete with one another depends on the capacity to transmit electricity" between the locations. We study the impact of transmission capacity on competition among" generators. We show that there may be no relationship between the effect of a transmission line" in spurring competition and the actual electricity that flows on the line. We then investigate the" equilibria that are likely to result as transmission lines between previously unconnected locations" are built and expanded. We demonstrate that limited transmission capacity can give a firm the" incentive to restrict its output in order to congest transmission into its area of dominance. This" analysis is applied to a model of California's forthcoming deregulated electricity market. Our" results indicate that at least one firm could have an incentive to strategically induce transmission" congestion and that relatively small investments in transmission may yield surprisingly large" payoffs in terms of increased competition.

Suggested Citation

Borenstein, Severin and Bushnell, James B. and Stoft, Steven, The Competitive Effects of Transmission Capacity in a Deregulated Electricity Industry (November 1997). NBER Working Paper No. w6293, Available at SSRN: https://ssrn.com/abstract=226050

Severin Borenstein (Contact Author)

University of California, Berkeley - Economic Analysis & Policy Group ( email )

Berkeley, CA 94720
United States
510-642-3689 (Phone)
707-885-2508 (Fax)

National Bureau of Economic Research (NBER)

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James B. Bushnell

University of California - Energy Institute ( email )

Berkeley, CA 94720
United States

University of California, Berkeley - Department of Industrial Engineering & Operations Research (IEOR)

IEOR Department
4135 Etcheverry Hall
Berkeley, CA 94720
United States

Steven Stoft

Retired Economist ( email )

2910 Elmwood Court
Berkeley, CA 94705
United States
(510) 644-9410 (Phone)

HOME PAGE: http://stoft.com

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