Alleged Transmission Undersupply: Is Restructuring the Cure or the Cause?

Tim Brennan
2005 Social Science Research Network  
Widespread concern over transmission capacity requires theoretical support to infer inadequacy from observed trends indicating reductions in the ratio of transmission to generation capacity over time. If integrated utilities had been regulated with allowed returns exceeding capital costs, transmissiongeneration ratios would have been excessive, and observed trends might be a correction. However, numerous commentators claim that post-restructuring transmission rates have been too low, with NIMBY
more » ... also discouraging investment. We model the possibility that inadequate separation between generation and transmission may result in reduced investment, in order to preserve incumbent market power in generation. However, consideration of transmission price caps and coordinated generation investment support other analyses that conclude that vertical separation itself may be a culprit.
doi:10.2139/ssrn.851804 fatcat:6vrpioyuhnenlepte6s2y23fiu