This article examines imperfectly competitive investment in electric power generation in the presence of congestion on the transmission grid. Under simple yet realistic assumptions, it precisely derives the technology mix as a function of the capacity of the transmission interconnection. In...

This article is the first to examine electric power producers' investment decisions when com- petition is imperfect and the transmission grid congested. This analysis yields numerous original insights. First, congestion on the grid is transient, and may disappear when demand is highest. Second,...

Price caps are often used by policy makers to "regulate markets". Previous analyses have focussed on the "supply side" impact of these caps, and derived the optimal price cap, which maximizes investment and welfare. This article expands the analysis to include the "demand side" impact of price...

The advent of "smart meters" will make possible Real Time Pricing of electricity: customers will face and react to wholesale spot prices, thus consumption of electric power will be aligned with its opportunity cost. This article determines the marginal value of a fraction of demand (or a...

This article examines how firms facing volatile input prices and holding some degree of market power in their product market link their risk management and production or pricing strategies. This issue is relevant in many industries ranging from manufacturing to energy retailing, where risk...

This article examines how …rms facing volatile input prices and holding some degree of market power in their product market link their risk management and their production or pricing strategies. This issue is relevant in many industries ranging from manufacturing to energy retailing, where risk...

This paper develops a dynamic risk management model to determine a firm's optimal risk management strategy. The risk management strategy has two elements: first, until leverage is very high, the firm fully hedges its operating cash how exposure, due to the convexity in its cost of capital. When...

This article examines imperfectly competitive investment in electric power generation in the presence of congestion on the transmission grid. Under simple yet realistic assumptions, it precisely derives the technology mix as a function of the capacity of the transmission interconnection. In...

Thanks to "smart grids", consumers will gradually become active players in electricity markets, especially by voluntarily decreasing their consumption when receiving scarcity messages from the market operator. For a fast and efficient transition to a more dynamic industry, the regulatory and...

This article examines auctions in the electricity industry. We find that the laws of physics that rule power transmission networks defeat ex post productive efficiency: the cheapest combination of generating plants is not always selected, not even in the optimal auction. Furthermore, neither the...