Models of Imperfect Competition in Deregulated Wholesale Electricity Markets

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In this dissertation we analyze, using standard formal imperfect competition models from the literature, two central public policy issues in the deregulated wholesale electricity markets. The first issue is the regulatory rules around generator ownership of transmission companies or transmission rights in general. The second issue we look into is the extent to which publicly owned generation assets should be privatized and what the objective function of the remaining assets should be in a market where a private generator also competes. Furthermore, before going into these formal analyses, we discuss the theory behind restructuring and deregulation, the practices of the United States, Britain and some Latin American countries, and the applicable lessons for the restructuring of the Turkish electricity industry from the theory and these experiences. On the first issue, we find that allowing generators to partially own transmission companies is not necessarily detrimental to consumer interests, depending on the transmission network configuration and the resulting congestion patterns. On the second issue, our finding is that, except in a few limiting cases, the optimal choice of objective function for the public (or regulated) firm for total surplus maximization is never pure profit maximization or pure welfare (or consumers' surplus) maximization, but a strictly convex combination of the two. Both results differ from the conventional wisdom and the previous findings of the relevant literatures, due to the special characteristics of the electricity markets and the electric transmission networks that are not observed in any other standard industry structure.

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  • 05/28/2018
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