NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

The Competitive Effects of Transmission Capacity in a Deregulated Electricity Industry

Severin Borenstein, James Bushnell, Steven Stoft

NBER Working Paper No. 6293
Issued in November 1997
NBER Program(s):   IO

In an unregulated electricity generation market, the degree to which generators in" different locations compete with one another depends on the capacity to transmit electricity" between the locations. We study the impact of transmission capacity on competition among" generators. We show that there may be no relationship between the effect of a transmission line" in spurring competition and the actual electricity that flows on the line. We then investigate the" equilibria that are likely to result as transmission lines between previously unconnected locations" are built and expanded. We demonstrate that limited transmission capacity can give a firm the" incentive to restrict its output in order to congest transmission into its area of dominance. This" analysis is applied to a model of California's forthcoming deregulated electricity market. Our" results indicate that at least one firm could have an incentive to strategically induce transmission" congestion and that relatively small investments in transmission may yield surprisingly large" payoffs in terms of increased competition.

download in pdf format
   (2052 K)

email paper

This paper is available as PDF (2052 K) or via email.

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w6293

Published: Borenstein, Severin, James Bushnell and Steven Stoft. "The Competitive Effects Of Transmission Capacity In A Deregulated Electricity Industry," Rand Journal of Economics, 2000, v31(2,Summer), 294-325.

Users who downloaded this paper also downloaded these:
Borenstein and Bushnell w6463 An Empirical Analysis of the Potential for Market Power in California's Electricity Industry
Joskow and Tirole w10472 Reliability and Competitive Electricity Markets
Bushnell, Mansur, and Saravia w13507 Vertical Arrangements, Market Structure, and Competition An Analysis of Restructured U.S. Electricity Markets
Joskow and Kahn w8157 A Quantitative Analysis of Pricing Behavior in California's Wholesale Electricity Market During Summer 2000
Wolak Market Design and Price Behavior in Restructured Electricity Markets: An International Comparison
 
Publications
Activities
Meetings
Data
People
About

Support
National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us