Title: How may a customer exploit the Bonneville Power Administration's new pricing scheme?

Authors: Doug Allen, Ira Horowitz, Chi-Keung Woo

Addresses: Energy and Environmental Economics, Inc., 101 Montgomery St., Suite 1600, San Francisco, CA 94104, USA. ' Department of Decision and Information Sciences, Warrington College of Business Administration, University of Florida, Gainesville, FL 32611-7169, USA. ' Energy and Environmental Economics, Inc., 101 Montgomery St., Suite 1600, San Francisco, CA 94104, USA; Hong Kong Energy Studies Centre, Baptist University of Hong Kong, Hong Kong

Abstract: For more than half a century, the Bonneville Power Administration (BPA) has marketed electricity produced by the Federal Columbia River Power System (FCRPS) to its |preference| customers in the Pacific Northwest. It has historically met the growing needs of its preference customers by augmenting the power provided by the FCRPS with market purchases and recovering its costs through its cost-based rates. The BPA, however, is preparing to implement a new pricing scheme intended to balance its historical commitment to supply its customers with low-cost power from the FCRPS with the need to signal that growing demands are met with increasingly expensive generation resources. This paper describes an opportunity that may exist for customers to exploit the scheme to obtain a larger share of low-cost federal power going forward. We show that when all customers take advantage of the opportunity, they find themselves in a form of the prisoner|s dilemma whose outcome is a lose-lose Nash equilibrium, and discuss its managerial implications.

Keywords: electricity supply; prices; pricing schemes; Bonneville Power Administration; prisoner|s dilemma; preference customers; customer exploitation; Federal Columbia River Power System; Pacific Northwest; Washington; Oregon; Idaho; Montana; Wyoming; Utah; USA; United States; Nevada; California; market purchases; cost recovery; cost-based rates; historical commitments; low-cost power; demand; expense; generation resources; federal power; Nash equilibrium; managerial implications; applied decision sciences.

DOI: 10.1504/IJADS.2011.038092

International Journal of Applied Decision Sciences, 2011 Vol.4 No.1, pp.80 - 93

Published online: 29 Sep 2014 *

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