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PoolCo and Market Dominance

Fortnightly Magazine - December 1995

taxes, return on investment, depreciation, and decommissioning expenses, if any.

In our model, we assumed that each utility would pursue a pricing strategy to maximize profit margins, and that the initial starting point would price at the incremental production cost (fuel plus variable O&M) for each plant. The modeling allows for pricing strategies set to any multiple of incremental production cost, and could easily be expanded to include reasonable alternative strategies.

1 Re Proposed Policies Governing Restructuring California's Electric Services Industry and Reforming Regulation, Decision 95-05-045, R.94-04-032, I.94-04-032, May 24, 1995, 161 PUR4th 217.

2 See, A. Henney, "Electric Restructuring and the California 'MOU', Public Utilities Fortnightly, Oct. 15, 1995, p. 44.

3 It is frequently suggested that gas generation would cost approximately $40/Mwh. However, this figure reflects low gas prices and the ability of qualifying facilities to obtain long-term power contracts. Without low gas prices and such contracts, gas-fired generation would probably cost more, particularly in a high-cost state such as New York.

4 These results are premised upon extrapolation at constant 1993 price and cost levels. In addition, the figures quoted refer to only operational units. Canceled plants or retired units were not included in the analysis, NUG contracts were also excluded because they were directly assigned.

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