Keeping the Power on: How Reliable is Our Electric System Under Partial Deregulation?
5 Pages Posted: 17 Jan 2001
The competitive market price of electricity will contain two components: (1) the costs of providing optimal reliability, and (2) a price premium that would be analogous to a surety bond that the utility will lose if it fails to provide the optimal reliability reflected in the market price. Analyses of future electricity prices that focus only upon capital, fuel, labor, and other directly observable costs are likely to understate competitive market prices. State regulated transmission companies are unlikely to provide optimal reliability. States should rationalize their electric power markets through deregulated transmission companies.
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