Open AccessMarket feedback replaces regulation: Adaptation in the electric power industry
Author(s) -
Little Ross,
Sawhill Bruce
Publication year - 1998
Publication title -
complexity
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.447
H-Index - 61
eISSN - 1099-0526
pISSN - 1076-2787
DOI - 10.1002/(sici)1099-0526(199803/04)3:4<46::aid-cplx9>3.0.co;2-i
Subject(s) - deregulation , electric power industry , marginal cost , maximization , adaptation (eye) , industrial organization , utility maximization , market power , economics , power (physics) , marketing , business , microeconomics , computer science , risk analysis (engineering) , market economy , electricity , physics , optics , mathematical economics , quantum mechanics , electrical engineering , monopoly , engineering
The electric utilities are not generally thought of as innovators, but with the impending deregulation of the market for power, this could change. The utility industry is faced with the need to become adaptive in real time, to respond to the rapidly changing demand for power on a given day in an environment in which marginal cost varies in hard‐to‐predict ways and profits are not guaranteed. Several firms in the industry are turning to complexity‐based approaches to simulate plant operations, estimate marginal costs in real time, and develop strategies for buying and selling power. This article describes three problems and approaches. It is surprising that utilities should be among the pioneers in applying complexity to business; we might speculate that it is the lack of other, traditional decision‐making processes for dealing with competitive markets that is making room for complexity to take root. Due to the protected environment of regulation, the industry has not previously needed the entrenched tools of marketing and profits maximization developed for competitive decision‐making.