This paper analyzes long-term power purchase contracts between an electric utility and a cogenerating facility and suggests ways to improve them. It discusses the best way to construct the contract payment structure in light of the given avoided cost structure; analyzing in detail the harmful incentives to low maintenance and how to avoid them. The paper concludes that the method it describes can be used to aid in the better design of contract provisions that will remedy the problem of incentives to low maintenance.
JoskowPaul (1982). “Industrial Cogeneration and Electricity Production in the United States.” In CrewMichael (ed.). Regulatory Reform and Public Utilities. Lexington, MA: D.C. Heath.
2.
JoskowPaulJonesDonald (1983). “The Simple Economics of Industrial Cogeneration.” The Energy Journal4(1).
3.
KleinB.CrawfordR.AlchianA. (1978). “Vertical Integration, Appropriable Rents, and the Competitive Contracting Process.” Journal of Law and Economics21: 297-326.
4.
ParsonsJohn (1989). “Estimating the Strategic Value of Long-Term Forward Purchase Contracts Using Auction Models.” Journal of Finance44: 981-1010.
5.
WilliamsonOliver E. (1975). Markets and Hierarchies: Analysis and Antitrust Implications. New York: Free Press.
