The Competitive Effects of Transmission Capacity in a Deregulated Electricity Industry / Severin Borenstein, James Bushnell, Steven Stoft.

Format:

Book

Author/Creator:

Borenstein, Severin.

Contributor:

National Bureau of Economic Research.

Bushnell, James.

Stoft, Steven.

Series:

Working Paper Series (National Bureau of Economic Research) no. w6293.

NBER working paper series no. w6293

Language:

English

Subjects (All):

Electrical engineering.

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 1997.

Cambridge, Mass. : National Bureau of Economic Research, 1997.

Summary:

In an unregulated electricity generation market, the degree to which generators in" different locations compete with one another depends on the capacity to transmit electricity" between the locations. We study the impact of transmission capacity on competition among" generators. We show that there may be no relationship between the effect of a transmission line" in spurring competition and the actual electricity that flows on the line. We then investigate the" equilibria that are likely to result as transmission lines between previously unconnected locations" are built and expanded. We demonstrate that limited transmission capacity can give a firm the" incentive to restrict its output in order to congest transmission into its area of dominance. This" analysis is applied to a model of California's forthcoming deregulated electricity market. Our" results indicate that at least one firm could have an incentive to strategically induce transmission" congestion and that relatively small investments in transmission may yield surprisingly large" payoffs in terms of increased competition.

Notes:

Print version record

November 1997.