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Residential Electricity Revisited

Hendrik S. Houthakker

Year: 1980
Volume: Volume 1
Number: Number 1
DOI: 10.5547/ISSN0195-6574-EJ-Vol1-No1-4
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Abstract:
The following is a report on various attempts to update and improve an earlier analysis of residential electricity demand (Houthakker, Verleger, and Sheehan, 1974-hereafter referred to as HVS). To understand what is new the reader should first know what has been maintained, namely:1. the logarithmic flow-adjustment model which estimates this year's consumption from last year's consumption, this year's price and income, and possibly (though not in HVS) from other variables,2. the pooling of annual time series for 48 states using the error component approach of Balestra & Nerlove, 3. the use of a "marginal price" for electricity.The present paper may be regarded as a verification of the first of these hypotheses, and to some extent of the other two.



Fair Value Versus Original Cost Rate Base Valuation During Inflation

Walter J. Primeaux, Jr., Edward L. Bubnys, and Robert H. Rasche

Year: 1984
Volume: Volume 5
Number: Number 2
DOI: 10.5547/ISSN0195-6574-EJ-Vol5-No2-6
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Abstract:
Valuation of public utility property for rate-making purposes has been controversial since the beginning of public regulation. Despite much academic research and practical experience, there is no consensus of academicians or practitioners concerning the appropriate value of physical property used for providing service to customers. In public utility rate making, the value of this physical property, net of depreciation, is called the rate base. An important question is how well regulatory processes adjust the rate base for price level changes during periods of inflation.Statutes of the individual states determine how public utility property will be valued for rate-making purposes. Three basic methods are employed. Original cost jurisdictions set the rate base at the value of the property when it was first installed in a public utility application; the fair value method attempts to adjust the base to a level that more correctly reflects its current value; and the reproduction cost approach tries to establish a value that would permit reproduction of the property. Because the reproduction cost approach is not now being used by any state, this study focuses on the original cost and fair value methods.



A Note on Measuring Household Welfare Effects of Time-of-Use (TOU) Pricing

Chi-Keung Woo

Year: 1984
Volume: Volume 5
Number: Number 3
DOI: 10.5547/ISSN0195-6574-EJ-Vol5-No3-12
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Abstract:
Several recent studies address the issue of household welfare effects caused by the implementation of time-of-use (TOU) pricing of electricity (for example, see Aigner and Lillard, 1982; Aigner and Learner, 1982; Parks, 1983; and Caves et al., 1983). In these studies, the historical average price is used to assess the household welfare change. Implicit in their approach is the assumption that the original electricity rate structure is a flat one. In fact, however, the common rate structure is multitier, frequently an inverted block. While the literature on demand for electricity includes extensive discussions of whether the average price or the marginal price is the correct price signal to a residential customer (e.g., Taylor, 1975; Nordin, 1976; Terza and Welch, 1982; and Billings, 1982), little attention has been given to evaluating welfare change resulting from TOU pricing.



Residential Gas Cooling: A Life-cycle Approach

Richard L. Itteilag and Christina A. Swanson

Year: 1986
Volume: Volume 7
Number: Number 4
DOI: 10.5547/ISSN0195-6574-EJ-Vol7-No4-5
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Abstract:
The outlook for increased gas cooling use has not only improved because the residential air conditioning market in general has grown but also because many of the factors that depressed gas air conditioner sales earlier have been eliminated. First, the gas cooling equipment available today is more reliable and durable than before. During the 1960s, deficiencies in the gas absorption air conditioner caused an annual failure rate of about 8 percent. It is now less than 1 percent due to a number of improvements implemented by Arkla Industries during the 1970s. For example, the stainless steel generators in the units were improved with chrome plating, which prolongs the system life of the units. The quality of the steel in the restrictors, burner tubes, and evaporator coils was also improved. Residential gas air conditioners now carry a ten-year warranty on all defects in material and workmanship on the sealed refrigeration unit, while a compressor in an electric air conditioner normally has only a one- to five-year warranty.



The NERC Fan in Retrospect and Lessons for the Future

Charles R. Nelson, Stephen C. Peck, Robert G. Uhler

Year: 1989
Volume: Volume 10
Number: Number 2
DOI: 10.5547/ISSN0195-6574-EJ-Vol10-No2-7
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Abstract:
Projections of the future demand for electricitypublished annually since 1974 by the North American Electric Reliability Council (NERC) have proved in retrospect to have been too high and the projected growth rate has been revised downward each year. Should forecasters have been able to do a better job of predicting the slowdown in electricity growth which has occurred since the early 1970s? The authors have attempted to provide partial answers to this question by comparing the published NERC projections with benchmark forecasts provided by simple models representing well-established techniques. The authors also discuss how modelers and planners can cope with uncertainty by using the techniques of decision analysis.



Developing Futures Markets for Electricity in Europe

Eirik Schroder Amundsen and Balbir Singh

Year: 1992
Volume: Volume 13
Number: Number 3
DOI: 10.5547/ISSN0195-6574-EJ-Vol13-No3-5
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Abstract:
Risk sharing instruments, which allow consumers and producers to hedge their price-risk, are additional essential elements of the electricity reorganization process presently taking place in Europe. This paper involves tin analysis of the feasibility of establishing futures markets in the electricity sector in general and with special emphasis on steps undertaken in the United Kingdom and Norway. Even though there seems to be sufficient price uncertainty to warrant the development of futures markets, there remains the question of whether the underlying new spot-markets are yet sufficiently competitive and well-functioning. Monopolistic elements in electricity generation make it doubtful whether efficiency can be obtained through the intended (Bertrand) price competition in the spot-market. Additional problems may arise from the potential adverse response of dominant multi-objective public enterprises to the new futures markets.



Price and Cost Impacts of Utility DSM Programs

Eric Hirst

Year: 1992
Volume: Volume 13
Number: Number 4
DOI: 10.5547/ISSN0195-6574-EJ-Vol13-No4-4
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Abstract:
More U.S. utilities are running more and larger demand-side management (DSM) programs. Assessing the cost effectiveness of these programs raises difficult questions for utilities and their regulators. In particular, should these programs aim to minimize the total cost of providing electric-energy services or should they minimize the price ofelectricity?Most of the debates about the appropriate economic tests to use in assessing utility programs do not address the magnitude of the impacts. As a result, questions remain about the relationships among utility DSM programs and acquisition of supply resources and the effects of these choices on electricity prices and costs. This study offersquantitative estimates on the tradeoffs between total costs and electricity prices. A dynamic model is used to assess the effects of energy-efficiency programs on utility revenues, total resource costs, electricity prices, and electricityconsumption for the period 1990 to 2010. These DSM programs are assessed under alternative scenarios for three utilities: a "base" that is typical of U.S. utilities; a "surplus" utility that has excess capacity, few planned retirements, and slow growth in fossil-fuel prices and incomes; and a "deficit" utility that has little excess capacity, many planned retirements, and rapid growth infossil-fuel prices and incomes. Model results show that DSM programs generally reduce electricity costs and increase electricity prices. However, the percentage reduction in costs is usually greaterthan the percentage increase in prices. On the other hand, most of the cost benefits of DSM programs can be obtained without raising electricity prices.



The Impact of Sulfur Limits on Fuel Demand and Electricity Prices in Britain

David M. Newbery

Year: 1994
Volume: Volume15
Number: Number 3
DOI: 10.5547/ISSN0195-6574-EJ-Vol15-No3-2
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Abstract:
By the year 1996, about one-quarter of Britain's electricity will be generated from gas, compared to zero in 1992, displacing coal. This switch is required by 2000 to meet the EC and UN mandated sulfur emissions limits, but was advanced by the imperfect market created by privatisation. This paper examines the economics of Flue Gas Desulfurisation, and argues that without the right to trade emissions permits, FGD may run at only 17% load because of premature investment in gas generation. Tradable permits have a large impact on profits for the generators and British Coal. At present the pool fails to schedule plant on avoidable cost, and electricity prices are likely to be set by the price of gas, not the emissions limits, though gas prices may rise with tighter future limits.



Rethinking Contracts for Purchasing Power: The Economic Advantages of Dispatchability

Gary W. Dorris and Timothy Mount

Year: 1994
Volume: Volume15
Number: Number 4
DOI: 10.5547/ISSN0195-6574-EJ-Vol15-No4-8
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Abstract:
The purpose of this article is to evaluate and compare the incremental cost of purchased power from non-utility generators (NUG) versus utility built generation considering a variety of contracts for energy purchases. Four types of contracts are evaluated: (1) Flat Rate Produce and Pay, (2) On-Peak/Off-Peak, (3) Basic Dispatchable, and 4) Actual Cycle Energy Dispatch. An analysis conducted for a representative utility calculates the effects of NUG power purchases on a utility's energy production costs and the cost of new debt issuances. Dispatchable energy contracts are shown to provide significant economic and operating advantages over Flat Rate and On-Peak/Off-Peak energy contracts. The analysis also shows that NUG purchases based on the actual costs of dispatch cost less than utility built generation financed at the utility's weighted average cost of capital. NUG contracts for a utility which already has significant risk exposure are shown to parallel a capital lease. Under these conditions, additional payment obligations to NUGs increase the cost of new debt issuances making an equity issuance for utility built capacity a more attractive option.



Reactive Power is a Cheap Constraint

Edward Kahn and Ross Baldick

Year: 1994
Volume: Volume15
Number: Number 4
DOI: 10.5547/ISSN0195-6574-EJ-Vol15-No4-9
View Abstract

Abstract:
Hogan (1993) has proposed a version of marginal cost pricing for electricity transmission transactions that include a component for reactive power to support voltage at demand nodes. His examples support the notion that the cost of satisfying voltage constraints can be quite high. We show that in his simplest example the price on this constraint results from an uneconomic and artificial characterization of the problem, namely an inefficient and unnecessarily constrained dispatch. By eliminating this characterization, the price of reactive power falls to a very modest level. Our counterexample has implications for the institutional arrangements under which transmission pricing reform will take place. We believe that environment will be an open access competitive setting, where dispatch is still controlled by one group of participants. Manipulation of marginal transmission costs becomes quite feasible in complex networks through subtle changes to dispatch. Therefore an open access regime using marginal cost pricing must involve either some kind of monitoring and audit function to detect potential abuses, or alternatively, institutional restructuring to eliminate conflicts of interest.




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