Issues in the Design of a Market Experiment for Bulk Electrical Power

by Jan Paul Acton, Stanley Besen

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The Federal Energy Regulatory Commission (FERC) has recently authorized an experimental program to analyze the effects of modified regulation of wholesale transactions involving electric utilities. These experiments provide increased pricing flexibility and retention by utilities of some of the profits from wholesale power exchanges. They require open access to the transmission network. The purpose is to see if these changes lead to increased efficiency and to a competitive market for electric power. The study describes the principal concerns of FERC in conducting the experiments, the criteria to be used in evaluating their effects, and the method of analysis to be employed. It also discusses some problems that must be faced in conducting experiments of this type. Finally, it provides a preliminary evaluation of an expected experiment involving six utilities in the Southwest and describes the data that must be obtained if an analysis and evaluation of the experiment is to be conducted properly.

This report is part of the RAND Corporation note series. The note was a product of the RAND Corporation from 1979 to 1993 that reported other outputs of sponsored research for general distribution.

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