Purchasing power for the grid: A social contract approach

Abstract

This paper considers a regulatory mechanism that electric utility regulators may use to govern the purchase of electric power that is generated by independent sellers. In the suggested mechanism, the commission will get to specify the terms of one ‘fair’ tariff, which any prospective generator may unconditionally use to sell power back to the utility grid; once this tariff is offered, the utility may freely design or negotiate as many alternatives as it likes. The suggested approach displays many economically desirable outcomes that can compare favorably with alternative procedures — i.e., avoided cost pricing and competitive bidding — that are now in use.