Publications

    Joskow, Paul, and Jean Tirole. “Retail Electricity Competition.” In, 2005. Publisher's VersionAbstract

    We analyze a number of unstudied aspects of retail electricity competition. We first explore the implications of load profiling of consumers whose traditional meters do not allow for measurement of their real time consumption, when consumers are homogeneous up to a scaling factor. In general, the combination of retail competition and load profiling does not yield the second best prices given the non price responsiveness of consumers. Specifically, the competitive equilibrium does not support the Ramsey two-part tariff. By contrast, when consumers have real time meters and are billed based on real time prices and consumption, retail competition yields the Ramsey prices even when consumers can only partially respond to variations in real time prices. More complex consumer heterogeneity does not lead to adverse se1ection and competitive screening behavior unless consumers have real time meters and are not rational. We then examine the incentives competitive retailers have to install one of two types of advanced metering equipment. Competing retailers overinvest in real time meters compared to the Ramsey optimum, but the investment incentives are constrained optimal given load-profiling and retail competition. Finally, we consider the effects of physical limitations on the ability of system operators to cut off individual customers. Competing retailers have no incentive to determine the aggregate value of non-interruption of consumers in the zones they serve, preferring instead to free ride on other retailers serving consumers in the same zones. 

     

    Committee, The Belmont Electricity Supply Study. “Retail Choice Study. Issues and Options for Electric Generation Service: A Report for Public Comment.” In, 2004.Abstract

    Excerpt from the Extecutive Summary:

    The Committee presents this study to the community for consideration and comment. The attached report and associated appendices and reference materials provide additional information and context. These materials are available at Belmont Municipal Lighting Department's (“BMLD”) offices, on BMLD’s web site, at the Town Clerk’s Office, and at the Belmont Library. The Committee invites any and all comments and specifically seeks input and comment on the following questions for its consideration in forming recommendations.

    1. Should the Town of Belmont pursue retail choice?

    2. If Belmont does pursue a retail choice approach, what benefits to the Town or consumers in the Town are most important to obtain in a retail choice program?

    3. If Belmont does pursue a retail choice approach, what timeframe should be considered?

    4. If Belmont does pursue a retail choice approach, what approach should be pursued?

    5. If Belmont does not pursue a retail choice approach, are there alternative power supply approaches or services, to be provided by BMLD, that are of interest?

    Markiewicz, Kira, Nancy Rose, and Catherine Wolfram. “Does Competition Reduce Costs? Assessing the Impact of Regulatory Restructuring on US Electric Generation Efficiency.” In, 2004. Publisher's VersionAbstract
    Although the allocative efficiency benefits of competition are a tenet of microeconomic theory, the relation between competition and technical efficiency is less well understood. Neoclassical models of profit-maximization subsume static cost-minimizing behavior regardless of market competitiveness, but agency models of managerial behavior suggest possible scope for competition to influence cost-reducing effort choices. This paper explores the empirical effects of competition on technical efficiency in the context of electricity industry restructuring. Restructuring programs adopted by many U.S. states made utilities residual claimants to cost savings and increased their exposure to competitive markets. We estimate the impact of these changes on annual generating plant-level input demand for non-fuel operating expenses, the number of employees and fuel use. We find that municipally-owned plants, whose owners were for the most part unaffected by restructuring, experienced the smallest efficiency gains over the past decade. Investor-owned utility plants in states that restructured their wholesale electricity markets had the largest reductions in nonfuel operating expenses and employment, while investor-owned plants in nonrestructuring states fell between these extremes. The analysis also highlights the substantive importance of treating the simultaneity of input and output decisions, which we do through an instrumental variables approach.
    Bessembinder, Hendrik, and Michael Lemmon. “Gains From Trade Under Uncertainty: The Case of Electric Power Markets.” In, 2004.Abstract

    The rapid growth in energy trading and movement towards deregulation of electricity markets have come to a halt in the wake of assertions that western U.S. energy markets were manipulated. This paper refocuses attention on the potential efficiency gains from competitive wholesale power trading, showing that for any given level of average demand, retail electricity prices will be lower if electricity is traded in competitive wholesale markets than if electricity is delivered by integrated producer-retailers. Wholesale power trading allows for the diversification of demand risk, and the greatest efficiency gains accrue when power demand is least correlated across markets and when there is substantial geographic variation in expected demand. Simulation evidence indicates that real time power trading could reduce retail prices by conservative estimates of 3 to 4% on average in the U.S., and that the combination of forward and real time trading could reduce prices by 6 to 10% or more. This analysis indicates that economic efficiency would be best served by policy aimed at ensuring that power markets are indeed competitive, and that sufficient transmission capacity exists for profitable power trades to be completed.