University of California Energy Institute

PWP-014

Regulation by Simulation: The Role of Production Cost Models in Electricity Planning and Pricing

Edward Kahn (U.C. Energy Institute)

PWP-014 is a case study in the role of complex computer simulation models in the regulation of the electricity industry. Kahn focuses on electricity production cost simulation models. These models are a standard planning tool used by utility management. Over the last decade, they have found their way into the regulatory planning and pricing process. Kahn examines the uses and abuses of these models in one particular setting. This application, the pricing of short run non-utility generation in California, illustrates conditions both favoring and hindering the reliability of costs estimates, and demonstrates the sensitivity of results to problem specification and model implementation.