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Electric grid investment under a contract network regime

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Abstract

This paper analyzes the incentives for electric grid investment that result from various proposed transmission network property regimes. In particular, we focus on “transmission congestion contracts” within a contract network regime such as proposed by William Hogan. We formalize a rule for awarding these new property rights to investors and show that, under certain conditions, this contract network approach can effectively deter detrimental investments, some of which are encouraged under other regimes. However, when these conditions are not met, market participants may still find it profitable to undertake network alterations which are detrimental to the network as a whole.

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Authors and Affiliations

  1. University of California Energy Institute, 2539 Channing Way, 94720, Berkeley, CA

    James B. Bushnell & Steven E. Stoft

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  1. James B. Bushnell
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  2. Steven E. Stoft
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Additional information

The authors would like to acknowledge the helpful comments of William Hogan, Ed Kahn, Ross Baldick, Pravin Varaiya, and three anonymous referees. This research was partially funded by the California Energy Commision under contract #700-93-003, amendment 2.

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Bushnell, J.B., Stoft, S.E. Electric grid investment under a contract network regime. J Regul Econ 10, 61–79 (1996). https://doi.org/10.1007/BF00133358

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  • DOI: https://doi.org/10.1007/BF00133358

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