A Note Concerning the Effect of Reserve Margins and Regulatory Policy on New Turbogenerator Size

Two extensions are provided to a model of lumpy investment originally formulated by Srinivasan. The extensions are provided in the context of an electric utility. The first extension shows the effect on optimal cycle time and investment size of constraining an electric utility to carry excess capacity just prior to a regeneration point. The second allows the firm's demand to depend on price and shows that a regulatory commission by its choice of price trajectory can affect the optimal turbogenerator sizes. In the last section a discussion is provided of the empirical relevance of the analysis.