Modern industrial society functions with the expectation that electricity will be available when required. By law, electric utilities have the obligation to provide electricity to customers in a “safe and adequate” manner. In exchange for this obligation, utilities are granted a monopoly right to provide electricity to customers within well-defined service territories. However, utilities are not unfettered in their monopoly power; public utility commissions regulate the relationship between a utility and its customers and limit profits to a “fair rate of return on invested capital.”
KeywordsMarket Power Regulatory Commission Efficient Market Information Control Electric Utility
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- 1.Primeaux (1985) also defines natural monopolies on the basis of certain structural conditions. When the infrastructure of a finn is such that it results in production externalities, then the good can be considered a natural monopoly. In the electric industry, such production externalities are typically associated with transmission and distribution of power. For example, duplicate electrical service would require duplicate capital expenditures and increased societal inconvenience. The more frequently streets need to be dug up for repair of distribution lines due to duplication, the lower the general appetite for duplicative services, which may or may not result in lower costs to customers.Google Scholar
- 2.Although the bulk of bidding has focused upon the provision of service, it must be noted that Albuquerque, New Mexico, has recently had voters approve an amendment to the city charter requiring it to be renewed through competitive bidding when it expires in January 1992 (Electric Utility Week, 1989b).Google Scholar
- 3.Demand-side management projects are often incorporated in bidding programs as an alternative to building new generation capacity.Google Scholar