The role of vibrant retail electricity markets in assuring that wholesale power markets operate effectively

Electricity Journal

Volumn 12, Issue 10, 1999, Pages 61-73

  Goulding, A J ^a   Rufin, Carlos ^b   Swinand, Gregory ^b  

^a Takeda Development Center Americas   (United States)

^b NONE

Author keywords

[No Author keywords available]

Indexed keywords

RETAIL ELECTRICITY MARKETS;

POWER MARKETS;

EID: 0033480855     PISSN: 10406190     EISSN: None     Source Type: Journal    
DOI: 10.1016/S1040-6190(99)00098-6     Document Type: Article

References (19)

1. The shopping credit model is sometimes referred to as the "price to compare" in some of the public policy literature.
2. We refer here to regulatory bodies such as the Federal Trade Commission and the U.S. Department of Justice.
3. This is the well-known Averch-Johnson effect. In a seminal paper, Averch and Johnson showed that standard regulatory mechanisms, such as one where the firm is able to make a regulated rate of return on capital, would give suboptimal incentives to firms and cause an overinvestment in capital. See H. Averch and L. Johnson, Behavior of the firm under regulatory constraint, Am. Econ. Rev., Dec. 1962.
4. Economic theory rightly regards gains from trade and arbitrage as "static" rather than "dynamic" benefits of markets. On the other hand, the "new" trade theory, and abundant empirical evidence, show the dramatic dynamic effects that trade (or the lack thereof) can have. When the scope of competition is extended by increasing opportunities to trade (for instance, by removing barriers to international trade), dramatic changes in the structure of economic activity occur, reallocating resources from activities of low to high relative value, and stimulating product innovation and investment to maintain competitive market positions.
5. A vast body of academic literature has been written on the subject since the mid-1950s when the economic questions involved were first crystallized, often by antitrust jurists. A bibliography with sources for this research is appended to this article.
6. Market performance generally refers to whether prices charged to final consumers are as low as the marginal cost of the product. There may be other issues with market performance, such as whether consumers are receiving an optimal level of reliability, choice, product information, etc.
7. Jean Tirole, The Theory of Industrial Organization (Cambridge, MA, MIT Press, 1988); and Patrick Rey and Jean Tirole, The logic of vertical restraints, 76 Amer. Econ. Rev. 921-39(1986).
8. Jean Tirole, The Theory of Industrial Organization (Cambridge, MA, MIT Press, 1988); and Patrick Rey and Jean Tirole, The logic of vertical restraints, 76 Amer. Econ. Rev. 921-39(1986).
9. Tirole, supra note 7, at 193.
10. The conditions are uncertainty over demand and supply cost - precisely the conditions in electricity markets.
11. In order of importance rather than chronological order.
12. It is important to recognize that some economists would argue that the social gains from decreasing costs of airline travel in the U.S. have not been Pareto-optimal, in the sense that some smaller markets have lost service and/ or faced higher prices. Choice in retail electricity markets will not have the same effect; costs for competitive retailers (as opposed to providers of "wires" type services) to serve rural markets are not significantly different from those for serving urban markets, given that retailing requires little physical infrastructure.
13. For general background, see Economist Intelligence Unit, Development Strategies for The World's Airlines (London, Sept. 1988); Nicholas Kernstock, Concerns about leverage cool market for airline takeovers, Aviation Wk. & Space Tech'y, Nov. 20, 1989, at 71; Polly Lane, Aircraft leasing firm aims to fly higher, Seattle Times, June 3, 1999.
14. For general background, see Economist Intelligence Unit, Development Strategies for The World's Airlines (London, Sept. 1988); Nicholas Kernstock, Concerns about leverage cool market for airline takeovers, Aviation Wk. & Space Tech'y, Nov. 20, 1989, at 71; Polly Lane, Aircraft leasing firm aims to fly higher, Seattle Times, June 3, 1999.
15. For general background, see Economist Intelligence Unit, Development Strategies for The World's Airlines (London, Sept. 1988); Nicholas Kernstock, Concerns about leverage cool market for airline takeovers, Aviation Wk. & Space Tech'y, Nov. 20, 1989, at 71; Polly Lane, Aircraft leasing firm aims to fly higher, Seattle Times, June 3, 1999.
16. Jonathon M. Kraushaar, Fiber Deployment Update of Year 1997 (Industry Analysis Division, Common Carrier Bureau, Federal Communications Commission, July 1998) and personal conversations with the author on 1998 data; and James Zolnierek, Katie Rangos, and James Eisner, Long-distance Market Shares, First Quarter 1998 (Industry Analysis Division, Common Carrier Bureau, Federal Communications Commission, June 1998).
17. Jonathon M. Kraushaar, Fiber Deployment Update of Year 1997 (Industry Analysis Division, Common Carrier Bureau, Federal Communications Commission, July 1998) and personal conversations with the author on 1998 data; and James Zolnierek, Katie Rangos, and James Eisner, Long-distance Market Shares, First Quarter 1998 (Industry Analysis Division, Common Carrier Bureau, Federal Communications Commission, June 1998).
18. Numerous such firms exist; FCC records show over 20, many of which own no infrastructure themselves.
19. The exchange is run by a company called "Band-X," for Bandwidth Exchange. Within a year of the founding of Band-X, minutes on the New York-to-London route were trading at a 15 percent discount to published tariff rates. Rates on the exchange today for the route are one-third lower than they were when the exchange opened in 1997. The discussion on telecom is based in part on Commoditizing telecoms: porkbellies calling?, Economist, Aug. 30, 1997, and conversations with Richard Elliot of Band-X about pricing and indexing information with regard to the telecom commodity market.