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January 22, 2017
Power Markets Are Better For Consumers Than Traditional Alernative, Study Says
William Pentland covers Steve Cicala's new study on how electricity markets are more cost-effective than the cost of service regulation.
By William Pentlandvia Forbes
A new study shows that power generation is more efficient in competitive power markets than it is under traditional command-and-control style regulation. Or, more specifically, imperfect markets are better for consumers than imperfect regulation.
In “Imperfect Markets Versus Imperfect Regulation in U.S. Electricity Generation,” Steve Cicala, a professor of public policy at the University of Chicago and a research fellow at the National Bureau of Economic Research, finds that wholesale power markets have reduce the cost of generating power by about $3 billion annually compared to the cost of generating power under traditional command-and-control style regulation.
The Public Utility Regulatory Policies Act of 1978 made it possible for non-utilities to enter the power generation business as so-called independent power producers (IPPs). However, discriminatory transmission practices limited the expansion of IPPs until the 1990s. In the wake of the Persian Gulf War, Congress passed the Energy Policy Act of 1992, which required transmission-owning utilities to offer unbundled transmission service to IPPs...