The Adequacy of Prospective Returns on Generation Investments under Price Control Mechanisms

The absence of an effective demand response mechanism, combined with episodic supply deficiencies, recently led the author to endorse a joint letter to the Federal Energy Regulatory Commission (FERC) supporting price caps on a limited and temporary basis. But by far the preferable solution is to establish the conditions necessary for an elastic demand response to shortages, allowing us to shift our reliance back from the artificial constructs of reserve requirements and capacity markets.