The electric power industry : deregulation and market structure

Abstract

The US electricity industry currently consists of vertically integrated regional utilities welding monopolistic power over their own geographic markets under the supervision of state and federally appointed regulators. Construction of the national grid of interconnected high voltage transmission lines that allow the bulk transport of electricity across the nation, over-capacity and the move away from centralized generation has eliminated many of the justifications for monopoly control and regulation of generation and transmission. As with the airline industry, natural gas and telecommunications, an open and competitive market is now possible. This thesis investigates and discusses the alternative market structures that are currently being proposed for a deregulated and competitive electricity industry, namely the centralized "Poolco" and the decentralized or bilateral "NetCoor" models and determine the attributes of each most likely to promote market efficiency. Further, by hypothesizing that both models will be allowed to evolve so as to enhance flexibility and economic efficiency in the market, then the final equilibrium market structures bear remarkable similarities in their underlying characteristics. The public policy decision then becomes not which market structure to choose for a deregulated and competitive electricity market but rather which path to choose in transition to the equilibrium market structure.