Cogeneration and electric power industry restructuring

Congress passed the Public Utilities Regulatory Policies Act (PURPA) in res ponse to the energy crisis of the early 1970s, One of the unintended result s of PURPA has been to show that electric generation was not a natural mono poly and could be opened to competition. Both the theoretical and empirical determinants of cogeneration and how they may be affected by future electr ic power industry restructuring are important for future industrial generat ion decisions. This paper explores these determinants and identifies differ ences between industrial cogenerators which sell power back into the electr icity grid (commercial generators) and those which keep all of their electr icity generation for internal purposes (self generators). The empirical res ults indicate that increases in industrial firm technical capabilities tend s to increase their probabilities of both commercial and self generating. I n addition, the models indicate that increases in retail electricity prices and industrial output increases industrial generation probabilities. The a bility to switch fuels enhances industrial generation probabilities, as doe s a decrease in the price of natural gas. The results also imply that under electric restructuring a number of industrial generators may find that the y face a stranded cost problem much like the one faced by their electric ut ility counterparts. (C) 1999 Elsevier Science B.V. All rights reserved. JEL classification: Q41; L94.In 1978.