A 'quick look up guide', "Electricity Cost Modeling Calculations" places the relevant formulae and calculations at the reader's finger tips. In this book, theories are explained in a 'nutshell' and then the calculation is presented and solved in an illustrated, step-by-step fashion. A valuable guide for new engineers, economists (or forecasters), regulators, and policy makers who want to further develop their knowledge of best practice calculations techniques or experienced practitioners (and even managers) who desire to acquire more useful tips, this book offers expert advice for using such cost models to determine optimally-sized distribution systems and optimally-structured power supplying entities. In other words, this book provides an everything-that-you-want-to-know-about-cost-modelling-for-electric-utilities (but were afraid to ask) approach to modelling the cost of supplying electricity. In addition, the author covers the concept of multiproduct and multistage cost functions, which are appropriate in modelling the cost of supplying electricity. The author has done all the heavy number-crunching, and provides the reader with real-world, practical examples of how to properly quantify the costs associated with providing electric service, thus increasing the accuracy of the results and support for the policy initiatives required to ensure the competitiveness of the power suppliers in this new world in which we are living. The principles contained herein could be employed to assist in the determination of the cost-minimizing amount of output (i.e., electricity), which could then be used to determine whether a merger between two entities makes sense (i.e., would increase profitability). Other examples abound: public regulatory commissions also need help in determining whether mergers (or divestitures) are welfare-enhancing or not; ratemaking policies depend on costs and properly determining the costs of supplying electric (or gas, water, and local telephone) service. Policy makers, too, can benefit in terms of optimal market structure; after all, the premise of deregulation of the electric industry was predicated on the idea that generation could be deregulated. Unfortunately, it is the economies of vertical integration between the generation. It is a comprehensive guide to the cost issues surrounding the generation, transmission, and distribution of electricity. It includes real-world examples that are practical, meaningful, and easy to understand. There are policy implications and suggestions to aid in the formation of the optimal market structure going forward (thus increasing efficiency of electric power suppliers). The principles contained herein could be employed to assist in the determination of the cost-minimizing amount of output.
Preface
Acknowledgments
1 Introduction 1
1.1 The Marginal Cost Pricing Doctrine 2
1.2 A Brief Overview of the U.S. Electric Market 3
1.3 Reducing Carbon Emissions 7
1.4 Internalizing the Cost of Reducing Carbon Emissions 11
1.5 Optimal Rate or Tariff Design and Tax Credits to Promote Efficient Use of Energy and a Reduction in Carbon Emissions 12
1.6 Conclusion 15
2 The Theory of Natuarl Monopoly 17
2.1 The Natural Monopoly Conundrum 17
2.2 For a Single-Output Market 19
2.3 Literature Review---Economies of Scale in Generation: Single-Output Models 26
2.4 For a Multiple-Output Natural Monopoly 30
2.5 Electricity as a Multiple-Output industry and Economies of Scope and Subadditivity 35
2.6 Economies of Vertical Integration and Separability 38
2.7 Relevant Literature Review---Vertical Integration and Separability 41
2.8 Conclusion 42
3 The U.S. Electric Markets, Structure, and Regulations by Chris Blazek 43
3.1 The U.S. Electric Industry Structure 43
3.2 Regulation of the Electric Utility Industry 64
3.3 State Regulations 99
3.4 The Future of the Electric Industry 106
4 The Economics (and Econometrics) of Cost Modeling 115
4.1 The General Cost Model 115
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