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

24 Pages Posted: 26 Nov 2005

See all articles by Tim Brennan

Tim Brennan

University of Maryland, Baltimore County - Department of Public Policy; Resources for the Future

Date Written: October 2005

Abstract

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" effects 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.

Keywords: electricity transmission, regulation, deregulation, vertical integration, restructuring

JEL Classification: L94, L51, L22

Suggested Citation

Brennan, Tim, Alleged Transmission Undersupply: Is Restructuring the Cure or the Cause? (October 2005). Available at SSRN: https://ssrn.com/abstract=851804 or http://dx.doi.org/10.2139/ssrn.851804

Tim Brennan (Contact Author)

University of Maryland, Baltimore County - Department of Public Policy ( email )

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Resources for the Future ( email )

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