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ID:
105815
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| Publication |
2011.
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| Summary/Abstract |
The cliché in the electricity sector, the "cheapest power plant is the one we don't build," neglects the benefits of the energy that plant would generate. That economy-wide perspective need not apply in considering benefits to only consumers if not building that plant was the exercise of monopsony power. A regulator maximizing consumer welfare may need to avoid rationing demand at monopsony prices. Subsidizing energy efficiency to reduce electricity demand at the margin can solve that problem, if energy efficiency and electricity use are substitutes. Renewable energy subsidies, percentage use standards, or feed in tariffs may also serve monopsony as well with sufficient inelasticity in fossil fuel electricity supply. We may not observe these effects if the regulator can set price as well as quantity, lacks buyer-side market power, or is legally precluded from denying generators a reasonable return on capital. Nevertheless, the possibility of monopsony remains significant in light of the debate as to whether antitrust enforcement should maximize consumer welfare or total welfare.
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| 2 |
ID:
097190
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| Publication |
2010.
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| Summary/Abstract |
Under conventional models, subsidizing energy efficiency requires electricity to be priced below marginal cost. Its benefits increase when electricity prices increase to finance the subsidy. With high prices, subsidies are counterproductive unless consumers fail to make efficiency investments when private benefits exceed costs. If the gain from adopting efficiency is only reduced electricity spending, capping revenues from energy sales may induce a utility to substitute efficiency for generation when the former is less costly. This goes beyond standard "decoupling" of distribution revenues from sales, requiring complex energy price regulation. The models' results are used to evaluate tests in the 2002 California Standard Practice Manual for assessing demand-side management programs. Its "Ratepayer Impact Measure" test best conforms to the condition that electricity price is too low. Its "Total Resource Cost" and "Societal Cost" tests resemble the condition for expanded decoupling. No test incorporates optimality conditions apart from consumer choice failure.
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