Long-run Adjustment to Alternative Levels of Reliability in Electricity Supply

Abstract

Most studies of reliable electricity supplies have been artful efforts to quantify the benefits of additional electric generating capacity (Webb; Andersson and Taylor). Outages are treated as the result of insufficient capacity, and outage costs are weighed against whatever outlays are necessary to bring new generation into the electrical system. Given the emphasis on long-run supply in the ultimate usefulness of these studies, research has focused to a remarkable degree on the cost of individual outage events (Sanghvi, 1982). The customer's long-run response to a change in reliability levels has rarely received much attention, and when it has been considered it has been treated as an analytically difficult or intractable problem. Our purpose is to show that the economics of long-run adjustments to a different level of reliability are in fact quite simple and easily incorporated into standard cost/benefit studies.