Research Update

September 2014

The listing below illustrates the range of topics addressed in the new working papers and publications posted since the last Research Update.

Tap into our Research:
Answers for the Growing Complexity of Infrastructure Pricing


The Price Effects of Independent Transmission System Operators in the United States Electricity Market

Do changes in electricity market structure lead to lower prices? Wholesale market efficiencies may be offset by increased costs to administer these markets, leading to uncertain outcomes for customers. This paper demonstrates that, once the confounding effects of market restructuring have been removed, price changes from RTOs and ISOs have been minimal.


Residential Winter kWh Responsiveness Under Optimal Time-varying Pricing in British Columbia

Do customers really respond to time-varying prices? Yes, according to this study. The researchers found that customers shift consumption from peak to off peak, but not by very much unless the utility uses load control, which triples the impact.


How May a Customer Exploit the Bonneville Power Administration’s New Pricing Scheme?

A Prisoner’s Dilemma in energy pricing? Could be, according to this research. For more than half a century the Bonneville Power Administration (BPA) has marketed electricity produced by the Federal Columbia River Power System to its "preference" customers in the Pacific Northwest. The BPA, however, is preparing to implement a new pricing scheme intended to signal that growing demands are being met with increasingly expensive generation resources. Customers may be able to exploit the scheme to obtain a larger share of low-cost federal power going forward. But when all customers take advantage of the opportunity, they find themselves in a form of the Prisoner’s Dilemma whose outcome is a lose-lose situation.


Challenges in Quantifying Optimal CO2 Emissions Policy

How might EPA carbon policies impact electricity prices? Most analysts focus on price levels. This research demonstrates that the policies could make prices less stable. Significant debate surrounds EPA policy to limit carbon dioxide emissions from existing power plants. Most of the debate surrounds the cost-effectiveness of these plans, but what about the efficiency? This paper demonstrates that the marginal cost curve of carbon abatement in Florida is not well-behaved, and how this leads to difficulty in the characterization of an ‘optimal’ level of abatement.


Implications of Carbon Cap-and-Trade for Electricity Rate Design, with Examples from Florida

Carbon dioxide prices do more than just change the way utilities generate electricity. They can also narrow the gap between on peak and off peak electricity prices. This has potential consequences for energy storage technologies and smart appliances that can delay their operation.


Pricing in Network Industries

This paper examines how price regulation is implemented across countries. It describes the central features of the network infrastructure in the telecommunications and electricity industries, discusses three regulatory policies that are commonly employed in both sectors, and reviews the predominant pricing policies that differ between telecommunications and electricity.


Cost Efficiency in Periodic Tariff Reviews: The Reference Utility Approach and the Role of Interest Groups

Does the Model Company approach to rate setting make customers better off? Maybe not, according to this research. This study checks for bargaining power in the rate setting process. It finds that political pressures may drive regulatory decisions, leading to a possible inaccuracy of the cost estimating methods. The results show the influence of more affluent consumers during rate setting and show that firms that operate in more densely populated areas receive substantially lower prices than the economic benchmarking methods would recommend. Significantly higher prices might be given to companies with the opposite characteristics.


The Performance of Endogenous Access Pricing

Traditionally, utility regulars establish fixed prices for access that reflect the regulator’s estimate of the utility’s average cost of providing the service. One alternative is to allow the utility flexibility in setting the access price. This paper shows that the resulting price would reflect the supplier’s actual average cost, which varies with output. This approach can avoid divergence between upstream revenues and costs, and enhance the incentive of a vertically integrated provider to operate efficiently in the upstream market, but it may discourage investment.


Usage-Based Pricing and Broadband Users Differentiation

Is there a better way to price broadband? Yes, according to this research. It explores alternative approaches and finds that usage-based pricing can serve the interests of both industry and consumers in certain situations.


Incentivizing Efficient Capital Structure

Regulated firms can be tempted to adopt cost-saving technologies, operating procedures, or capital structures without fully assessing the associated risks. This paper demonstrates how a regulator can preclude such behavior if she can impose substantial penalties on the firm in the event of poor realized performance. When these penalties are more limited, which is the typical case, the regulated firm can profit from its privileged ability to assess the riskiness of potential technologies. If these penalties are sufficiently limited, the regulator adopts a command and control approach.


In addition to our research papers on pricing issues, we have developed trainings on these topics.

Pricing for Sustainability, PURC Online Course


For more information on our pricing-related research or trainings, please contact us via email (purcinfo at warrington.ufl.edu).

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