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Transmission Pricing And Stranded Costs In The Electric Power Industry
(William J. Baumol ;J. Gregory Sidak)

Stranded costs are those costs that electric utilities are currently permitted to recover through their rates but whose recovery may be impeded or prevented by the advent of competition in the industry. This book is a study of the ways in which a transmission price, the price for sending electricity over the transmission grid, can be determined in a manner that is both economically efficient and neutral in its effects upon all competitors in electricity generation. Mr. Baumol is director of the C. V. Starr Center for Applied Economics at New York University. Mr. Sidak is the F. K. Weyerhaeuser Fellow in Law and Economics at AEI. A summary of the book follows.
The Energy Policy Act of 1992 brought the competitive market model to the regulation of electric power transmission. That legislation amended section 211 of the Federal Power Act to provide that any power producer may apply to the Federal Energy Regulatory Commission (FERC) for an order requiring a transmitting utility to provide transmission services--including any enlargement of transmission capacity necessary to provide such services--to the applicant. Perhaps more important, the Energy Policy Act amended section 212 of the Federal Power Act to require that rates charged for mandatory wholesale wheeling promote the economically efficient transmission and generation of electricity. ("Wheeling" refers to the trading of bulk power between utilities over the interconnected transmission grid.)

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