Regulation, Efficiency, and Competition in the Exchange of Electricity

First-Year Results from the FERC Bulk Power Market Experiment

by Jan Paul Acton, Stanley Besen, Toshi Hayashi

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This report presents the results of RAND's analysis of data from the first year of the Federal Energy Regulatory Commission's (FERC) Southwest bulk electric power market experiment. In successive sections, the authors describe current FERC regulation of transactions among electric utilities; develop a simple conceptual model of the economics of bulk power exchanges; discuss the effects of current regulation on the behavior of utilities in this model; describe the six utilities participating in the FERC experiment; and present efficiency and competitive analyses based on a paradigm of a hypothetical competitive and frictionless market consisting of the six participating utilities. The authors report mixed findings with respect to efficiency, and inconclusive results of the analysis of competitiveness. They suggest that refining the analytic technique and analyzing the second year of experimental data will be beneficial.

This report is part of the RAND Corporation report series. The report was a product of the RAND Corporation from 1948 to 1993 that represented the principal publication documenting and transmitting RAND's major research findings and final research.

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