Strategies to address transition costs in a restructuring electricity industry

This paper discusses the potential financial consequences, or transition costs, of transforming electricity generation from a regulated to a competitive market in the US. Industry-wide estimates suggest potential monetary losses could exceed $100 billion as a result of the move to competition. The p...

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Bibliographic Details
Published in:Energy policy 1997-04, Vol.25 (5), p.481-490
Main Authors: Baxter, Lester, Hirst, Eric, Hadley, Stanton
Format: Article
Language:English
Subjects:
Applied sciences
Competition
Costs
Deregulation
Economic data
Electric energy
Electric power
Electric utilities
Electrical industries
Electricity
Energy
Energy economics
Energy industry
Energy policy
Energy sector
Exact sciences and technology
General, economic and professional studies
Industrial policy
Power generation
Restructuring
Stranded investment
Studies
Transition costs
U.S.A
United States
US electricity industry
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Summary:This paper discusses the potential financial consequences, or transition costs, of transforming electricity generation from a regulated to a competitive market in the US. Industry-wide estimates suggest potential monetary losses could exceed $100 billion as a result of the move to competition. The paper discusses the most prominent strategies suggested to address these potential losses. For each strategy, the paper identifies the parties most likely to bear the financial consequences. Most strategies do nothing to reduce the total costs to society, but instead shift costs from one set of economic actors to another. The exceptions are those strategies that result in economic-efficiency gains, which can then be used to offset the transition costs. Most of the strategies examined require the cooperation of several parties, including regulators, to be implemented successfully.
ISSN:0301-4215
1873-6777
DOI:10.1016/S0301-4215(97)00026-8