2008_01_24_RPI_Presentation - Public Goods, Market Power,...

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Unformatted text preview: Public Goods, Market Power, and Environmental Regulation in the Electric Power Sector Outline Part I: Public goods and market power help make electricity markets interesting for economists Part II: Test of a scheme for suppressing market power Part III: Analysis of carbon dioxide emission regulation in power sector Part I: Public goods and market power help make electricity markets interesting for economists This section draws from Markets for Reactive Power and Reliability: A White Paper, T. Mount, W. Schulze, D. Shawhan, R. Thomas, D. Toomey, and R. Zimmerman Reliability is a public good If transmission line goes out, whole community affected If someone takes action to reduce probability of blackout, no customer can be excluded from benefits, and one customers receiving this benefit does not reduce the extent to which another receives it Pointed out by Hogan, Kleindorfer, and Joskow Voltage Too high or too low damages customer equipment, or prevents it from functioning properly The more voltage, the more line flow Like pressure in a pipe Voltage is a public good Voltage is regional No customer in region can be excluded, and one customers receiving proper voltage does not reduce the extent to which another receives it Reactive power is needed for proper voltage Generators produce real and reactive power If voltage too high, generators called on to make less Vice versa Reactive power doesnt travel far, so its production is needed locally Result: More market power for generators Issue in Californias deregulated market Public goods providers in New York Generators required to provide reactive power on demand Public goods providers at First Energy (Ohio) Generators not required to provide reactive power on demand to maintain the public good of voltage Cut tree trimming budget, so provided less of the public good of reliability Failure in public goods provision: Northeast blackout of 2003 ~$6 billion lost due to 8/14/03 blackout Recap so far Reliability and voltage are public goods Generators can have quite a bit of market power Recap so far...
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2008_01_24_RPI_Presentation - Public Goods, Market Power,...

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