Electricity Cost Modeling Calculations (eBook)

Front Cover 1
Electricity Cost Modeling Calculations 4
Copyright Page 5
Contents 6
Preface 10
Some Basic Economic Theory 12
A New Regulatory Paradigm 13
Acknowledgments 16
Chapter 1: Introduction 18
1.1. The marginal cost pricing doctrine 19
1.2. A brief overview of the u.s. electric market 20
1.3. Reducing carbon emissions 24
1.4. Internalizing the cost of reducing carbon emissions 28
1.5. Optimal rate or tariff design and tax credits to promote efficient use of energy and a reduction in carbon emissions 29
1.6. Conclusion 32
Chapter 2: The Theory of Natural Monopoly 34
2.1. The natural monopoly conundrum 34
2.2. For a single-output market 36
2.3. Literature review-economies of scale in generation: single-output models 43
2.4. For a multiple-output natural monopoly 47
2.5. Electricity as a multiple-output industry and economies of scope and subadditivity 52
2.6. Economies of vertical integration and separability 55
2.7. Relevant literature review-vertical integration and separability 58
2.8. Conclusion 59
Chapter 3: The U.S. Electric Markets, Structure, and Regulations 60
3.1. The U.S. electric industry structure 60
3.2. Regulation of the electric utility industry 81
3.3. State regulations 116
3.4. The future of the electric industry 123
Chapter 4: The Economics (and Econometrics) of Cost Modeling 132
4.1. The general cost model 132
4.2. The econometrics of cost modeling: an overview 135
4.3. A brief history of cost models and applications to the electric industry 143
4.4. Appendix 163
4.5. Exercises 164
Chapter 5: Case Study: Breaking up Bells 166
5.1. Introduction 166
5.2. The natural monopoly conundrum 167
5.3. Breaking up bell: the case of AT& T
5.4. Economies of vertical integration: an argument for natural monopoly? 178
5.5. Parallels between telephony and electricity 179
5.6. Lessons to be learned 190
5.7. Conclusion 194
Chapter 6: Cost Models 196
6.1. The determination of an appropriate objective function: a brief overview of the literature 196
6.2. Flexible functional forms 203
6.3. Multiproduct cost functions 213
6.4. Measures of efficiency for multiple-output models 228
6.5. Chapter conclusion 232
6.6. End of chapter exercises: multiple-output cost models 232
6.7. Appendix: proofs 233
Chapter 7: Case Study: Can Rural ElectricCooperatives Survive in aRestructured U.S. Electric Market?An Empirical Analysis 238
7.1. Abstract 238
7.2. Introduction 238
7.3. Literature Review 242
7.4. Cost Models 243
7.5. Implications for Public Policy 254
7.6. Conclusion 255
Chapter 8: A Test of Vertical Economies for Non-Vertically Integrated Firms: The Case of Rural Electric Cooperatives 258
8.1. Abstract 258
8.2. Introduction 258
8.3. Background: rural electric cooperatives 259
8.4. Reasons that cooperatively owned utilities are different 259
8.5. Literature review 260
8.6. Data 261
8.7. Methodology 263
8.8. Preliminary results-all coops 263
8.9. Economies of vertical integration 264
8.10. Estimation results 265
8.11. Tests for vertical integration 266
8.12. Conclusion 268
Chapter 9: Load Forecasting-The "Demand" for Electricity 270
9.1. What is forecasting? 270
9.2. Data Sources: The Energy Information Administration 271
9.3. An Overview of Electricity Forecasting Models 278
9.4. Load Forecasting Methodologies 280
9.5. End-Use Models 282
Appendix 9.1 A Nested-Logit Model for Determining Heating and Cooling Choices: Example 294
Appendix 9.2 The Components of the EIA's AEO 2009 Model 298
Chapter 10: Efficient Pricing of Electricity 300
10.1. The debate on the optimal pricing of electricity: a brief history 300
10.2. Rate design 303
10.3. The theory of efficient prices 308
10.4. Two-part tariffs 316
10.5. Multipart tariffs 322
10.6. Time-of-use rates 325
10.7. Real-time pricing 328
10.8. Conclusion 329
10.9. Exercises 330
Chapter 11: Case Study: The CaliforniaDebacle (or What Not to Do) 334
11.1. Introduction 334
11.2. The electricity crisis: summer 2000 335
11.3. Chronology of the california electricity crisis: lessons learned (or what not to do) 336
11.4. Conclusion 341
Bibliography 342
Index 352