Question

a. Expound on the desirable design of wholesale electricity markets. Explain the risk of market power exercise in wholesale electricity markets. c. Discuss the economic logic underlying cost-of-service regulation.

Answer 1

a. Electricity has become the most important part of life. We cannot assume our life without electricity. In the past few decades, the electricity market has seen a boom phase due to dependency of the human beings on the electrical appliances. A design of the wholesale electricity markets can be designed on the basis of two factors. The one can be stated as setting up and distributing the private owners and the private owners. This is very important for setting up the wholesale markets as the people will have more choices. The second factor is considering and making lenient laws and regulations so that the market could flourish. These factors will help in setting up the whole sale market.

b. When we start any kind of task there is always an inherited into it. A business can never run without a possibility of hidden risk in it. One of the major risk factor is the technology. The electricity market is based of technology on a whole. So, if the technology changes than there is a lot of chance of the electricity market to face a lot of challenges. They must be technologically updated from time to time.

c. A cost of service regulation is a regulation which bounds the manufacturer or the seller to provide the commodities or the services based upon the inherited cost of providing services to different customers and also providing various services to other customers. This regulation also applies to the wholesale electricity market as they must provide the products and services at the price which is involved in it. They must abide this regulation.