QUIZ 11 ANSWER KEY
Regulation of Electric Power
Version A
I. Multiple choice [2 pts each: 28 pts total]
(1)c. (2)b. (3)b. (4)c. (5)c. (6)c. (7)c. (8)b. (9)b. (10)e. (11)c. (12)c. (13)c. (14)a.
II. Problems
(1) [Peak-load pricing: 33 pts]
- 70 thousand kilowatt hours is the capacity of the generating system.
- $0.14 per kWh.
- 70 million kWh.
- $0.02 per kWh.
- 60 million kWh.
- 80 million kWh.
- 40 million kWh.
- increase.
- 10 million kWh.
- DWL is represented by two areas: a triangle bounded by SRMC, off-peak demand, and a vertical line at 40 million kWh; and another "upside down" triangle bounded by LRMC, peak demand, and a vertical line at 80 million kWh.
- $1 million, total area of the two triangles.
(2) [Wholesale power markets: 20 pts]
- Demand and supply should be stairsteps, intersecting at price=$50 and quantity = 110 mWh.
- Generator A: 70 mWh, Generator B: 10 mWh, Generator C: 30 mWh, Generator D: 0.
- $40 per mWh.
- Generator B.
(3) [Sources of market power: 16 pts]
- 6.8
- 0.147 .
- εM (increases in absolute value, because changes in wholesale prices are now passed through to retail customers, who are the decision-makers on the demand side).
- |εDF| increases.
- Price cost margin decreases (because it is the reciprocal of |εDF|)
decreases.
- SDF (increases because as more generators join the market, this individual generator's market share decreases).
- |εDF| increases.
- Price-cost margin decreases (because it is the reciprocal of |εDF|)
III. Critical thinking [3 pts]
A non-vertically-integrated utility is subject to more wholesale power price risk. If wholesale power prices rise, then a non-vertically-integrated utility will see its profit decrease or become negative, because its most important input has become more expensive. However, a vertically-integrated utility produces its own wholesale power instead of buying it in a market, so it will not see a change in its profit.
Version B
I. Multiple choice [2 pts each: 28 pts total]
(1)d. (2)c. (3)d. (4)d. (5)a. (6)d. (7)a. (8)c. (9)d. (10)e. (11)c. (12)d. (13)a. (14)c.
II. Problems
(1) [Peak-load pricing: 33 pts]
- 90 thousand kilowatt hours is the capacity of the generating system.
- $0.16 per kWh.
- 90 million kWh.
- $0.04 per kWh.
- 70 million kWh.
- 100 million kWh.
- 50 million kWh.
- increase.
- 10 million kWh.
- DWL is represented by two areas: a triangle bounded by SRMC, off-peak demand, and a vertical line at 50 million kWh; and another "upside down" triangle bounded by LRMC, peak demand, and a vertical line at 100 million kWh.
- $1 million, total area of the two triangles.
(2) [Wholesale power markets: 20 pts]
- Demand and supply should be stairsteps, intersecting at price=$40 and quantity = 90 mWh.
- Generator A: zero, Generator B: 50 mWh, Generator C: 20 mWh, Generator D: 20 mWh.
- $40 per mWh.
- Generator C.
(3) [Sources of market power: 16 pts]
- 5.2
- 0.192 .
- SDF (increases because as more generators join the market, this individual generator's market share decreases).
- |εDF| increases.
- Price cost margin decreases (because it is the reciprocal of |εDF|)
- εM (increases in absolute value, because changes in wholesale prices are now passed through to retail customers, who are the decision-makers on the demand side).
- |εDF| increases.
- Price-cost margin decreases (because it is the reciprocal of |εDF|)
decreases.
III. Critical thinking [3 pts]
Same as Version A.
[end of answer key]