Deregulation and Privatization of
Electricity Generation
Click on True or False to test your knowledge of the chapter.
1. True False In the past, governments have either owned or regulated the electricity supply industry since they believed it was a natural monopoly.
2. True False Electric utilities have traditionally been horizontally but not vertically integrated with the same company owning all the generation plants, another company owning all the transmission wires, and a third owning all the distribution facilities for a given country
3. True False X-inefficiency refers to the higher costs that prevail in competitive markets because they lack the discipline of government regulators or bureaucrats to oversee their expenditures.
4. True False Regulatory capture refers to a situation where regulators are taken hostage by a hostile industry and held for ransom.
5. True False Elected government officials may have goals such as high employment, low inflation, low electricity prices supporting home industries, and helping the poor that conflict with the economic efficiency of a government owned electric supply industry.
6. True False In recent electricity restructuring, electricity transmission and distribution are most often considered candidates for competition whereas generation, wholesaling and retailing are considered natural monopolies.
7. True False Previously integrated electric supply monopolies dispatched power. In recent restructuring independent system operators are often responsible for dispatching power.
8. True False In electricity generation, steam, water or wind turn a generator shaft that rotates in a magnetic field to produce direct current.
9. True False Hertz is a measure of the flow of electrons.
10. True False The volt is a measure of electric potential or the force pushing the electrons and the watt is a measure of power equal to volts times amps.
11. True False If the temperature in an electricity generator falls from 1100 degrees F to 90 degrees F, the maximum efficiency is 0.648 of 64.8%.
12. True False PURPA allowed some non-utility producers of
electricity in the
13. True
False Of
the four countries discussed – the
14. True False Suppose the loss of load probability is 2% for a 6 kwh short fall and 1% for a 10 kwh short fall. The value of a 6 kwh load loss is estimated to be 12 and the value of a load loss of 10 kwh is 36. The capacity charge in this case would be $0.005 per kwh.
15. True False Market power has not been and is not expected to be a problem in any of the four countries.
16. True False All four countries discussed corporatized their publically owned electricity facilities with restructuring.
17. True False Rate of return regulation is rapidly becoming the desired form of price regulation.
18. True False Cross subsidization of prices in electricity markets in the past have ensured that electricity prices reflected costs by time and location and such cross subsidization is likely to remain in restructured markets.
19. True False The Herfindahl Index suggests that a market with 3 firms with market share 0.4, 0.4, 0.2, respectively is less concentrated than a market with 3 equal sized firms.
20. True False Ring fencing is the containment area around nuclear cooling ponds to prevent radioactivity from leaking out to surrounding areas.
21. True False Of the three kinds of ownership (government ownership, government owned corporation, and private ownership) economists tend to prefer private ownership on economic efficiency grounds, but with some form of government regulation or activity to counteract market power.
22. True False There is no conclusive evidence yet which path for electricity restructuring is the most efficient.
23. True False Suppose that in the U.K. power pool forecasted demand next hour is 120 kWand bids for the next hour are
National Power bids $0.04 per kWh for 60 kW
Power Gen bids $0.05 per kWh for 60 kW
National Power bids $0.10 per kWh for 60 kW
There is a capacity constraint of 40 for transmission from Power Gen. System marginal cost for this market would be $0.05 with National Power and Power Gen each supplying half of the market.
24. True False Brownouts are significant interruptions of electricity (Contributed by Hermann Logsend)
25. True False RPI-X is a designation used to refer to a price cap. (Contributed by Jeffrey Campbell)
26. True False
An important lesson from
27. True False If Network Services is considered a natural monopoly element in the system it should be under some sort of regulation.
28. True False Part of California's deregulation plan was for the three investor owned utilities (IOU's) to divest some of their generation capacity.
29. True False Since the cost of generating
electricity is larger during peak than off peak periods a utility which is
forced to use average cost pricing would want to discourage consumers from
using peak electricity.
30. True False Yardstick
price regulation has been common in
31. True False The current incentives to restructure electricity markets towards more competition have been largely driven by changes in technology.
32. True False If natural gas prices increase $2.00 per Mcf, the fuel operating costs in a gas powered electricity generation plant with a heat rate of 8,000 will increase about $16 per megawatt hour.