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Alleged Transmission Undersupply: Is Restructuring the Cure or the Cause?

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  • Brennan, Timothy J.

Abstract

Widespread concern over transmission capacity requires theoretical support to infer inadequacy from observed trends indicating reductions in the ratio of transmission to generation capacity over time. If integrated utilities had been regulated with allowed returns exceeding capital costs, transmission generation ratios would have been excessive, and observed trends might be a correction. However, numerous commentators claim that post-restructuring transmission rates have been too low, with NIMBY also discouraging investment. We model the possibility that inadequate separation between generation and transmission may result in reduced investment, in order to preserve incumbent market power in generation. However, consideration of transmission price caps and coordinated generation investment support other analyses that conclude that vertical separation itself may be a culprit.

Suggested Citation

  • Brennan, Timothy J., 2005. "Alleged Transmission Undersupply: Is Restructuring the Cure or the Cause?," Discussion Papers 10723, Resources for the Future.
    • Handle: RePEc:ags:rffdps:10723
    DOI: 10.22004/ag.econ.10723
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    More about this item

    Keywords

    Environmental Economics and Policy;

    JEL classification:

    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure

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