Reliability, Electric Power, and Public Versus Private Goods: A New Look at the Role of Markets

Abstract

The economic theory that has been used to support restructuring of the electric power industry has ignored several important technological constraints and public goods that affect the way in which power is delivered. Some of these public goods include voltage, frequency, and reliability of lines. Similarly, engineers, by using security-constrained optimization to incorporate the demand for reliability, have failed to properly define the economic problem. This research attempts to remedy this deficiency through a collaborative effort between economists and engineers to examine the theoretical and empirical properties of a networked power system that provides economically optimal reliability and draw conclusions regarding efficient market design.