Transcript www.theapex.org

The Continuing Evolution of U.S.
Electricity Markets
David LaPlante
APEX Conference
October 15, 2007
Background
• Federal Government Regulates Wholesale
Power (Federal Energy Regulatory Commission –FERC)
• State Governments Regulate Retail Power
– Coordinating State And Federal Policies Is Difficult
• Evolved In Response To Abuses In Early
Electricity Markets In 1920s
– 1935 – 1978 Regulatory Framework Stayed Constant
– Vertically Integrated Utilities Dominated The Industry
Evolution of U.S. Power Markets
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Evolution to Markets
• Why the Move to Markets
– National Policies Favoring Deregulation (Airlines, Telecom)
– 1970s Energy Crises
• Public Utility Regulatory Policies Act of 1978 (PURPA)
– Enables limited emergence of Non-Utility Generating Companies
• Energy Policy Act of 1992
– Eases restrictions on Non-Utility Generators
– Expands FERC’s authority over transmission service
• FERC issues Order 888 in 1996
– Open Transmission System to All
• Many Regions responded by creating regional markets
– ISOs and RTOs created to run the regional power markets
Evolution of U.S. Power Markets
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Wholesale Power Markets, March 2007
Source: Federal Energy Regulatory Commission http://www.ferc.gov/industries/electric/indus-act/rto/rto-map.asp
Evolution of U.S. Power Markets
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Regional Market Differences
• Markets Based on Locational Marginal
Pricing
– ISO-NE, New York, PJM, Midwest ISO
• Locational Marginal Pricing Under
Development
– CAISO, Texas
• Single Price Markets
– Ontario, Alberta, Southwest Power Pool
Evolution of U.S. Power Markets
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Evolution of Retail Competition
• High Cost Electricity States Began Looking
At Retail Competition In Mid-1990s
– California, Northeast, Mid-Atlantic States
• Seen as a way to reduce costs
• Some States Forced Utilities To Sell
Generation
– California, New York, New England,
• Have Not Required Retail Customers To Find Their Own
Supply Of Electricity
• The States Are Procuring Energy Through Auctions Or
Request For Proposals
Evolution of U.S. Power Markets
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Status of State Electric Industry Restructuring
Activity as of February 2003
Source: U.S. Energy Information Administration ttp://www.eia.doe.gov/cneaf/electricity/chg_str/restructure.pdf
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Summary of Market Experience
• Electricity Prices in Markets low through 2004
– Low Natural Gas Prices
– Marginal Cost Lower than Average Costs
• Significant Amounts of New Generation Built Privately
– Significant Overbuilding in some Areas (Texas, New England)
• Consumers shielded from bankruptcies caused by overbuilding
• Increased Efficiency of Operations
– Availability of Generators increased
– Nuclear Unit Availability increased significantly
Evolution of U.S. Power Markets
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Challenges Facing Markets in the USA
• Natural Gas Prices Increased In 2005
– Caused Electricity Prices To Rise
– Average Cost Is Now Lower Than Marginal Cost
– Certain States/ Supporters Of Markets Having Second Thoughts
• Uncertainty Over Carbon Reduction Costs
– California/10 Northeastern States Have own Approaches
– Prospect For National Legislation Uncertain
• Fully Integrating Demand Into The Markets
• Attracting New Investment
– Capacity Markets
– State Mandates
Evolution of U.S. Power Markets
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Gathering Issues
• Enhancing the role of demand response in organized
markets
– Greater use of market prices to elicit demand reductions during a
power shortage
• Providing more opportunities for long-term power
contracting
• Strengthening market monitoring
• Improving responsiveness to customers and other
stakeholders
Evolution of U.S. Power Markets
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