The emerging competition in the electric power sector raises a number of important policy and strategic issues. Alternative market designs will create different opportunities for both incumbent and new firms. Some designs will promote economic efficiency more than others.
While economic modeling focuses on only a subset of issues, it can improve basic understanding of different implications for both strategic and policy decisions. In this report we have discussed three such problems:
- the incentives for and the impact of exercising control over electricity prices by large producers,
- the effect of different transmission and wholesale market rules on electricity prices, and
- the broader impacts of restructuring on energy markets and on the environment.
Application of models to these and other problems will require constant monitoring of assumptions and understanding of different general approaches.