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Deregulating the Generation of Electricity Through the Creation of Spot Markets for Bulk Power

Many observers are dissatisfied with the current condition of privately owned electric utilities in the United States. Numerous pro-posals have been made for change, including suggestions to deregulate all or part of the industry.' Those who favor deregulation argue that electric power systems, and especially electric generation, may no longer be natural monopolies. Furthermore, under the present regulatory regime, many utilities are refraining from investing, which is not in the best interests of their customers.2 Others, however, worry that quality and reliability of1. See Golub (1982, Chapter 2) for a review of the literature on deregulating electricutilities.2. A major electric utility's internal planning documents discussed the problem as follows. The ability to raise new capital is finite, and is especially limited given the current financial condition, the economy, and the regulatory climate. Thus, although the recommended investments ... will lead to a correct economic decision ... they may not be desirable due to other constraints [on the company] ... The document goes on to report that the company is not investing in coal projects, although such projects' long-term cost is one-third less than current anticipated generating costs.

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Energy Specializations: Energy Investment and Finance – Trading Strategies and Financial Instruments; Electricity – Policy and Regulation

JEL Codes: Q40: Energy: General, Q41: Energy: Demand and Supply; Prices, L98: Industry Studies: Utilities and Transportation: Government Policy, L51: Economics of Regulation

Keywords: Electricity generation, Deregulation, Spot markets for bulk power, Risk, Forecasting

DOI: 10.5547/ISSN0195-6574-EJ-Vol5-No2-5

Published in Volume 5, Number 2 of the bi-monthly journal of the IAEE's Energy Economics Education Foundation.


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