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JDS
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UC Energy <ucenergy@socrates.berkeley.edu> on 11/16/99 03:17:50 PM

	
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                               Welcome

                                  to

           The University of California Energy Institute's


        POWER Working Paper Email Notification Service (PWPENS)


The University of California Energy Institute's Program on Workable Energy
Regulation (POWER) has distributed working papers since 1992.  With this
email, we are launching a service to notify interested researchers,
regulators, and practitioners when new POWER working papers become
available.


All POWER working papers can be downloaded free of charge from the UCEI
website:  http://www.ucei.berkeley.edu/ucei  Just follow the link to "POWER
Research".



Below are the titles and abstracts of the POWER working papers that have
been released so far in 1999, along with links that allow you to go
straight to the full working paper text (available in Adobe Acrobat
format).  As new POWER working papers are released, PWPENS will
automatically notify you by email.


If you would like to be removed from this list, please send an email to
Mailto:ucenergy@socrates.berkeley.edu and include UNSUBSCRIBE in the
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_________________________________________________________________


       N E W   P O W E R   W O R K I N G   P A P E R S


                 Working Paper Series of UCEI
_________________________________________________________________



T I T L E S
_________________________________________________________________


"Regulation and the Leverage of Local Market Power in the California
Electricity Market" (September 1999)
 PWP-070 by James B. Bushnell and Frank A. Wolak


"Electricity Markets: Should the Rest of the World Adopt the UK Reforms?"
(September 1999)
 PWP-069 by Catherine Wolfram


"Does Incentive Regulation Provide the Correct Incentives?: Stochastic
Frontier Evidence from the US Electricity Industry" (September 1999)
 PWP-068 by Christopher R. Knittel


"Understanding Competitive Pricing and Market Power in Wholesale
Electricity Markets"  (August 1999)
 PWP-067 by Severin Borenstein


"Pricing Electricity for Default Customers: Pass Through or
Performance-Based Rates?"  (August 1999)
 PWP-066 by Carl Blumstein


"Regulatory Imperfections in the Electricity and Natural Gas Industries:
Evidence from the Pricing and Investment Decisions of Single and
Multi-Product Electricity Firms"  (July 1999)
 PWP-065 by Christopher R. Knittel


"Diagnosing Market Power in California's Deregulated Wholesale Electricity
Market"  (July 1999)
 PWP-064 by Severin Borenstein, James Bushnell, and Frank Wolak


"Zonal Pricing and Demand-Side Bidding in the Norwegian Electricity Market"
 (June 1999)
 PWP-063 by Tor Arnt Johnsen, Shashi Kant Verma, and Catherine Wolfram


"Transmission Rights and Market Power" (November 1998)
 PWP-062 by James Bushnell


"Power-Grid Decentralization" (March 1999)
 PWP-061 by Bart McGuire




A B S T R A C T S
_________________________________________________________________



"Regulation and the Leverage of Local Market Power in the California
Electricity Market" (September 1999)
 PWP-070 by James B. Bushnell and Frank A. Wolak

Regulators of electricity markets around the world continue to struggle
with the problem of incentivizing generators whose output, due to their
location in the grid, has no viable substitutes.  Such generators possess
'local' market power.  Since these generators also compete in broader
regional markets, the actions taken to exploit their local market power can
also effect market outcomes over larger areas.  In California, a contract
structure known as the reliability must-run (RMR) contract was developed to
address the problem of local market power.  However, the contract form that
was in place during 1998 created serious incentive problems.  We find that,
during the months of June through September 1998, RMR contracts had the
effect of raising overall supply bid prices from most producers, thereby
leading to higher energy prices in the California regional market.

Download this paper in Adobe Acrobat format:
http://www.ucei.berkeley.edu/ucei/PDF/pwp070.pdf

     ________________________________________



"Electricity Markets: Should the Rest of the World Adopt the UK Reforms?"
(July 1999)
 PWP-069 by Catherine Wolfram

Policy makers everywhere have analyzed and tried to learn from the UK
electricity restructuring, adopting some of the same market features but
modifying others. Now the British government has embarked on a radical
reform of their electricity industry, called the Programme to Reform the
Electricity Trading Arrangements or "RETA." The changes to the electricity
market are slated for September 2000. Some of the changes will bring the UK
in line with what other countries have done, but other changes will be
unique. Is the UK poised to leapfrog the rest of the world, adopting every
market feature that has proved successful and modifying those that have
not? Should the rest of the world be following the UK's lead on some of
these changes? This paper argues that the answer is a decisive "no" to both
questions. While proposed reforms to introduce demand-side bidding and
encourage financial innovation make sense, the government's proposal to pay
suppliers their bids rather than the market clearing price will not help
achieve the stated goals of fostering competition and lowering prices.

Download this paper in Adobe Acrobat format:
http://www.ucei.berkeley.edu/ucei/PDF/pwp069.pdf

     ________________________________________



"Does Incentive Regulation Provide the Correct Incentives?: Stochastic
Frontier Evidence from the US Electricity Industry"  (September 1999)
 PWP-068 by Christopher R. Knittel

Many policy-makers are currently weighing the advantages of deregulating
electricity markets over more traditional regulatory methods. However,
within this traditional regulatory environment many options exist.  In
particular, the use of incentive regulation programs in US electricity
markets has grown during the past two decades. These programs differ in
both their goals and how they attempt to meet these goals. In this paper, I
discuss the wide array of programs that have been utilized, and investigate
the impact of individual programs on the technical efficiency of a large
set of coal and natural gas generator units. Within a stochastic frontier
framework, I allow the distribution of inefficient production to be a
function of the regulatory environment the plant operates under. The
results suggest that while certain incentive regulations increase observed
technical efficiency, others have either no effect or even lead to a
reduction in efficiency.

Download this paper in Adobe Acrobat format:
http://www.ucei.berkeley.edu/ucei/PDF/pwp068.pdf

     ________________________________________



"Understanding Competitive Pricing and Market Power in Wholesale
Electricity Markets"  (August 1999)
 PWP-067 by Severin Borenstein

Discussions of competition in restructured electricity markets have
revealed many misunderstandings about the definition, diagnosis, and
implications of market power.  In this paper, I attempt to clarify the
meaning of market power and show how it can be distinguished from
competitive pricing in markets with significant short-run supply
constraints.  I also address two common myths about market power: (a) that
it is present in all markets and (b) that it must be present in order for
firms to remain profitable in markets with significant fixed costs.  I
conclude by arguing that, while a finding of market power in an industry
does not necessarily indicate that government intervention is warranted,
such analysis is an important part of creating sound public policy.

Download this paper in Adobe Acrobat format:
http://www.ucei.berkeley.edu/ucei/PDF/pwp067.pdf

     ________________________________________



"Pricing Electricity for Default Customers: Pass Through or
Performance-Based Rates?"  (August 1999)
 PWP-066 by Carl Blumstein

California electricity consumers can choose a retail electricity service
provider, but most have not done so. These consumers remain, by default,
customers of the utility distribution companies (UDCs). Pricing electricity
for these default customers is now an issue before the California Public
Utilities Commission. In California this issue is framed largely in terms
of two alternatives: pass through of the wholesale electricity price or a
performance-based rate (PBR). Under the first alternative, purchase from
the California Power Exchange (PX) would be mandatory; under the second,
each UDC would determine where to purchase supply and each UDC's
performance would be gauged by comparing its costs to the PX price. This
paper identifies issues that should be addressed in choosing between the
two alternatives. First the paper examines the effects of the two
alternatives on electricity prices. The analysis suggests that, at least in
the near term, the choice will not have much effect on prices. Next the
paper looks at possible perverse incentives. A central concern here is
that, if providing default service becomes profitable, UDCs might use their
distribution assets to stifle competition in the retail market. Finally,
the paper examines regulatory costs associated with the alternatives and
concludes that regulatory costs are likely to be higher under a PBR.

Download this paper in Adobe Acrobat format:
http://www.ucei.berkeley.edu/ucei/PDF/pwp066.pdf

     ________________________________________



"Regulatory Imperfections in the Electricity and Natural Gas Industries:
Evidence from the Pricing and Investment Decisions of Single and
Multi-Product Electricity Firms"  (July 1999)
 PWP-065 by Christopher R. Knittel

Electricity and natural gas markets have traditionally been serviced by one
of two market structures. In some markets, electricity and natural gas are
sold by a dual-product regulated monopolist, while in other markets,
electricity and natural gas are sold by separate single-product regulated
monopolies. This paper analyzes the relative pricing and investment
decisions of electricity firms operating in the two market structures. The
unique relationship between these two products, namely that electricity and
natural gas are substitutes in consumption and natural gas is an input into
the generation of electricity, allows me to gain inferences regarding the
efficacy of regulation in both the electricity and natural gas industries.
The results imply that both electricity prices and reliance on natural gas
generation are higher in a dual-product setting, both suggestive that
regulators respond to the relative incentives of electricity and natural
gas firms.

Download this paper in Adobe Acrobat format:
http://www.ucei.berkeley.edu/ucei/PDF/pwp065.pdf

     ________________________________________



"Diagnosing Market Power in California's Deregulated Wholesale Electricity
Market"  (July 1999)
 PWP-064 by Severin Borenstein, James Bushnell, and Frank Wolak

Effective competition in wholesale electricity markets is the cornerstone
of the deregulation of the electricity generation industry. We examine the
degree of competition in the California wholesale electricity market during
June-November 1998 by comparing the market prices with estimates of the
prices that would have resulted if all firms were price takers. We find
that there were significant departures from competitive pricing and that it
was most pronounced during the highest demand periods. Overall, this raised
the cost of power purchases by about 22% above the competitive level. We
also explain why the prices observed cannot be attributed to competitive
peak-load pricing.

Download this paper in Adobe Acrobat format:
http://www.ucei.berkeley.edu/ucei/PDF/pwp064.pdf

     ________________________________________



"Zonal Pricing and Demand-Side Bidding in the Norwegian Electricity Market"
 (June 1999)
 PWP-063 by Tor Arnt Johnsen, Shashi Kant Verma, and Catherine Wolfram

PWP-063 analyzes prices in the day-ahead electricity market in Norway. We
consider the hypothesis that generators are better able to exercise market
power when transmission constraints bind, resulting in smaller,
more-concentrated markets. We test this hypothesis by comparing equilibrium
prices across periods with different demand elasticity and with and without
binding transmission constraints. We find some empirical evidence that
prices in local markets are higher during constrained periods when demand
is less elastic.

Download this paper in Adobe Acrobat format:
http://www.ucei.berkeley.edu/ucei/PDF/pwp063.pdf

     ________________________________________



"Transmission Rights and Market Power" (November 1998)
 PWP-062 by James Bushnell

Stakeholders throughout the United States are currently working to reach a
consensus on the structure and protocols that will define tradable
transmission rights in the context of the various wholesale electricity
markets, and their associated Independent System Operators (ISOs), now
forming in different regions of the U.S.  Much of the discussion has
focused on the relative merits of physical transmission rights in
comparison with financial transmission rights.   To the extent that
transmission rights provide their owners with an added level of influence
or control over transmission markets, some of the historical industry
concerns over vertical market power may need to be revisited.   In this
paper, I discuss some of the potential concerns over transmission rights
and their use for the exercise of various forms of market power.

Download this paper in Adobe Acrobat format:
http://www.ucei.berkeley.edu/ucei/PDF/pwp062.pdf

     ________________________________________



"Power-Grid Decentralization" (March 1999)
 PWP-061 by Bart McGuire

Most of the literature concerned with decentralized operations in power
grids has focussed on partitioning systems initially into two main parts,
the transmission system and the market of users (the "ISO" and the "PX"),
and asking how the actions of these two subgroups can be properly
coordinated.  While a number of studies have gone on to examine
decentralized operations in the user market of producers and consumers,
little attention has been given to how the operation of the transmission
system itself might be decentralized.  In this paper we propose an
organizational procedure for coordinating the actions of the managers of
given subgrids of a larger system.  Non-invasive price-quantity dialogs are
defined that, under fairly general circumstances, bring about perfect
short-run coordination of the aggregate grid.

Download this paper in Adobe Acrobat format:
http://www.ucei.berkeley.edu/ucei/PDF/pwp061.pdf