We analyze a number of unstudied aspects of retail electricity competition. We first explore the ... more We analyze a number of unstudied aspects of retail electricity competition. We first explore the implications of load profiling of consumers whose traditional meters do not allow for measurement of their real time consumption, when consumers are homogeneous up to a scaling factor. In general, the combination of retail competition and load profiling does not yield the second best prices given the non price responsiveness of consumers. Specifically, the competitive equilibrium does not support the Ramsey two-part tariff. By contrast, when consumers have real time meters and are billed based on real time prices and consumption, retail competition yields the Ramsey prices even when consumers can only partially respond to variations in real time prices. More complex consumer heterogeneity does not lead to adverse se1ection and competitive screening behavior unless consumers have real time meters and are not rational. We then examine the incentives competitive retailers have to install one of two types of advanced metering equipment. Competing retailers overinvest in real time meters compared to the Ramsey optimum, but the investment incentives are constrained optimal given load-profiling and retail competition. Finally, we consider the effects of physical limitations on the ability of system operators to cut off individual customers. Competing retailers have no incentive to determine the aggregate value of non-interruption of consumers in the zones they serve, preferring instead to free ride on other retailers serving consumers in the same zones.
The good performance of energy markets during the seven or eight years following the Gulf War mas... more The good performance of energy markets during the seven or eight years following the Gulf War masked many continuing and emerging energy policy challenges that derive from larger domestic and foreign policy issues. The changes in world oil, domestic natural gas, and electricity markets in 1999 and especially 2000 likely reflect the effects of ignoring some of these challenges."
This paper discusses the evolution of wholesale and retail competition in the U.S. electricity se... more This paper discusses the evolution of wholesale and retail competition in the U.S. electricity sector and associated industry restructuring and regulatory reforms. It begins with a discussion of the industry structure and regulatory framework that characterized the U.S. electric power industry during most of the 20 th century and reviews the initial efforts to open the electricity industry to competitive suppliers of generating services during the 1980s and early 1990s. The economic and political pressures that emerged in the early 1990s for more fundamental reforms are discussed, including the stranded cost issue and its resolution. The architecture of the basic reform model that supports both wholesale and retail competition in the supply of generation services adopted by a number of pioneer states is developed. Recent trends in generation divestiture, mergers between electric utilities, and between electric and gas pipeline and distribution companies, and entry of unregulated merchant generating plants are then reviewed. The new institutional arrangements necessary to govern access to and the operations of electric transmission networks to support competition among competing decentralized generators of electricity are examined. Transmission pricing, market organization, congestion management and market power issues are included in this analysis. The structure and performance of California's competitive electricity markets are discussed in detail as an example of the applications of these principles and the challenges that electricity sector restructuring must confront. Early experience with retail competition in California, Massachusetts, and Pennsylvania is reviewed. The paper concludes with an initial assessment of the benefits and costs of electricity sector restructuring to date in the U.S. and some thoughts regarding future challenges and trends.
the capital costs of reactor construction the time taken to build the reactor the interest ... more the capital costs of reactor construction the time taken to build the reactor the interest rates associated with project financing the reactor's efficiency and performance the costs of adequate liability insurance relating to accidents and terrorist acts the required rate of return on ...
2 FERC (1998) gives a detailed account of price spikes in Midwestern markets in 1998. Price spike... more 2 FERC (1998) gives a detailed account of price spikes in Midwestern markets in 1998. Price spikes in the Eastern US during 1999 were related to reliability problems of various kinds (DOE, 2000). Prices in California remained remarkably high in October and November and then reached unprecedented levels during December 2000. The latter part of this period was also accompanied by an order of magnitude increase in gas prices, the evaporation of imports from the Northwest, a large fraction of California's generating capacity was unavailable to supply due to planned or forced outages, some of which were mandated by environmental regulators, new regulatory interventions, and utility credit problems that may have made some suppliers reluctant to supply voluntarily. It is clear that by late 2000, the normal functioning of the wholesale electricity markets had completely broken down. The analysis reported here does not cover the post-September 2000 period, however.
Asset specificity is usually considered to be an argument for vertical integration. The main idea... more Asset specificity is usually considered to be an argument for vertical integration. The main idea is that specificity induces opportunistic behaviour, and that vertical integration reduces this problem of opportunism. In this article I show that asset specificity actually can be an argument for non-integration. In a repeated game model of relational contracts, based on Baker, Gibbons and Murphy, 2002, I show that asset specificity affects the temptation to renege on relational contracts between non-integrated parties, but not between integrated parties. If the parties are non-integrated, higher levels of specificity can provide relational contracts with higher-powered incentives.
Amajor PREMISE underlying public util-ity regulation is that competition is an ineffective regula... more Amajor PREMISE underlying public util-ity regulation is that competition is an ineffective regulator in the supply of utility services. Thus, in markets in which competition is deemed impractical, regulation is substituted for market forces to determine both levels and ...
Markets for Power provides an unusually complete analysis of the economic, technical, and institu... more Markets for Power provides an unusually complete analysis of the economic, technical, and institutional aspects of the electric utility industry. The authors evaluate four currently popular options for deregulating this unique segment of the economy, and in a balanced program for reform, they advise against total deregulation and recommend a cautious approach to even partial deregulation.
The rapid spread of nuclear reactors, uranium enrichment facilities, and reprocessing plants outs... more The rapid spread of nuclear reactors, uranium enrichment facilities, and reprocessing plants outside of the nuclear weapons club--to countries such as Brazil, South Korea, and the Union of South Africa--has caused concern resulting in a suggestion that the technology transfer be banned until more acceptable safeguards are adopted. Several reasons why this approach to the proliferation problem is unlikely to be successful are discussed. First, the U.S. no longer possesses a monopoly over reactor technologies or fuel cycle processes. In fact, in the area of reprocessing and breeder reactor development the U.S. lags behind other industrialized countries. Second, the nature of the nuclear industries in most of these countries makes it highly unlikely that they would go along with such an embargo; rather, they would be likely to exploit the opportunity for additional nuclear sales to the fullest. Third, such a policy would run the risk of wrecking the existing NPT which guarantees countries nondiscriminatory access to nuclear technology for peaceful purposes. These facts have led some in the domestic nuclear power establishment to conclude that the current realities of the international nuclear energy industry not only rule out the possibility of an effective unilateral U.S. embargo policy but mandatemore » the cessation of nuclear trade. The author presents his views against this argument. He says that trade in nuclear facilities can be effectively regulated through cooperative agreements and international institutional arrangements. Recent agreements to regulate such trade, signed by six key countries, is a step in the right direction. (MCW)« less
We analyze a number of unstudied aspects of retail electricity competition. We first explore the ... more We analyze a number of unstudied aspects of retail electricity competition. We first explore the implications of load profiling of consumers whose traditional meters do not allow for measurement of their real time consumption, when consumers are homogeneous up to a scaling factor. In general, the combination of retail competition and load profiling does not yield the second best prices given the non price responsiveness of consumers. Specifically, the competitive equilibrium does not support the Ramsey two-part tariff. By contrast, when consumers have real time meters and are billed based on real time prices and consumption, retail competition yields the Ramsey prices even when consumers can only partially respond to variations in real time prices. More complex consumer heterogeneity does not lead to adverse se1ection and competitive screening behavior unless consumers have real time meters and are not rational. We then examine the incentives competitive retailers have to install one of two types of advanced metering equipment. Competing retailers overinvest in real time meters compared to the Ramsey optimum, but the investment incentives are constrained optimal given load-profiling and retail competition. Finally, we consider the effects of physical limitations on the ability of system operators to cut off individual customers. Competing retailers have no incentive to determine the aggregate value of non-interruption of consumers in the zones they serve, preferring instead to free ride on other retailers serving consumers in the same zones.
The good performance of energy markets during the seven or eight years following the Gulf War mas... more The good performance of energy markets during the seven or eight years following the Gulf War masked many continuing and emerging energy policy challenges that derive from larger domestic and foreign policy issues. The changes in world oil, domestic natural gas, and electricity markets in 1999 and especially 2000 likely reflect the effects of ignoring some of these challenges."
This paper discusses the evolution of wholesale and retail competition in the U.S. electricity se... more This paper discusses the evolution of wholesale and retail competition in the U.S. electricity sector and associated industry restructuring and regulatory reforms. It begins with a discussion of the industry structure and regulatory framework that characterized the U.S. electric power industry during most of the 20 th century and reviews the initial efforts to open the electricity industry to competitive suppliers of generating services during the 1980s and early 1990s. The economic and political pressures that emerged in the early 1990s for more fundamental reforms are discussed, including the stranded cost issue and its resolution. The architecture of the basic reform model that supports both wholesale and retail competition in the supply of generation services adopted by a number of pioneer states is developed. Recent trends in generation divestiture, mergers between electric utilities, and between electric and gas pipeline and distribution companies, and entry of unregulated merchant generating plants are then reviewed. The new institutional arrangements necessary to govern access to and the operations of electric transmission networks to support competition among competing decentralized generators of electricity are examined. Transmission pricing, market organization, congestion management and market power issues are included in this analysis. The structure and performance of California's competitive electricity markets are discussed in detail as an example of the applications of these principles and the challenges that electricity sector restructuring must confront. Early experience with retail competition in California, Massachusetts, and Pennsylvania is reviewed. The paper concludes with an initial assessment of the benefits and costs of electricity sector restructuring to date in the U.S. and some thoughts regarding future challenges and trends.
the capital costs of reactor construction the time taken to build the reactor the interest ... more the capital costs of reactor construction the time taken to build the reactor the interest rates associated with project financing the reactor's efficiency and performance the costs of adequate liability insurance relating to accidents and terrorist acts the required rate of return on ...
2 FERC (1998) gives a detailed account of price spikes in Midwestern markets in 1998. Price spike... more 2 FERC (1998) gives a detailed account of price spikes in Midwestern markets in 1998. Price spikes in the Eastern US during 1999 were related to reliability problems of various kinds (DOE, 2000). Prices in California remained remarkably high in October and November and then reached unprecedented levels during December 2000. The latter part of this period was also accompanied by an order of magnitude increase in gas prices, the evaporation of imports from the Northwest, a large fraction of California's generating capacity was unavailable to supply due to planned or forced outages, some of which were mandated by environmental regulators, new regulatory interventions, and utility credit problems that may have made some suppliers reluctant to supply voluntarily. It is clear that by late 2000, the normal functioning of the wholesale electricity markets had completely broken down. The analysis reported here does not cover the post-September 2000 period, however.
Asset specificity is usually considered to be an argument for vertical integration. The main idea... more Asset specificity is usually considered to be an argument for vertical integration. The main idea is that specificity induces opportunistic behaviour, and that vertical integration reduces this problem of opportunism. In this article I show that asset specificity actually can be an argument for non-integration. In a repeated game model of relational contracts, based on Baker, Gibbons and Murphy, 2002, I show that asset specificity affects the temptation to renege on relational contracts between non-integrated parties, but not between integrated parties. If the parties are non-integrated, higher levels of specificity can provide relational contracts with higher-powered incentives.
Amajor PREMISE underlying public util-ity regulation is that competition is an ineffective regula... more Amajor PREMISE underlying public util-ity regulation is that competition is an ineffective regulator in the supply of utility services. Thus, in markets in which competition is deemed impractical, regulation is substituted for market forces to determine both levels and ...
Markets for Power provides an unusually complete analysis of the economic, technical, and institu... more Markets for Power provides an unusually complete analysis of the economic, technical, and institutional aspects of the electric utility industry. The authors evaluate four currently popular options for deregulating this unique segment of the economy, and in a balanced program for reform, they advise against total deregulation and recommend a cautious approach to even partial deregulation.
The rapid spread of nuclear reactors, uranium enrichment facilities, and reprocessing plants outs... more The rapid spread of nuclear reactors, uranium enrichment facilities, and reprocessing plants outside of the nuclear weapons club--to countries such as Brazil, South Korea, and the Union of South Africa--has caused concern resulting in a suggestion that the technology transfer be banned until more acceptable safeguards are adopted. Several reasons why this approach to the proliferation problem is unlikely to be successful are discussed. First, the U.S. no longer possesses a monopoly over reactor technologies or fuel cycle processes. In fact, in the area of reprocessing and breeder reactor development the U.S. lags behind other industrialized countries. Second, the nature of the nuclear industries in most of these countries makes it highly unlikely that they would go along with such an embargo; rather, they would be likely to exploit the opportunity for additional nuclear sales to the fullest. Third, such a policy would run the risk of wrecking the existing NPT which guarantees countries nondiscriminatory access to nuclear technology for peaceful purposes. These facts have led some in the domestic nuclear power establishment to conclude that the current realities of the international nuclear energy industry not only rule out the possibility of an effective unilateral U.S. embargo policy but mandatemore » the cessation of nuclear trade. The author presents his views against this argument. He says that trade in nuclear facilities can be effectively regulated through cooperative agreements and international institutional arrangements. Recent agreements to regulate such trade, signed by six key countries, is a step in the right direction. (MCW)« less
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Papers by Paul Joskow