Transcript Deregulation and Competition How different is electricity?

Retail Electricity: Has
Deregulation Flopped?
Robert J. Michaels
California State University, Fullerton
Energy Bar Association
Mid-Year Meeting
Washington, D.C.
November 17, 2000
A flop by nature or design?
• Success of deregulation in gas, telecom,
rail freight, etc.
• There, regulators did not impose markets
and call it deregulation
• Electricity: success inversely related to
degree of a state’s “revolution”
– Impetus for change was success of bilaterals
– Some utilities [PG&E] and regulators
[ERCOT] wanted expansion to end-users
The “Market Monitor” Paradigm
• Wolak (Cal ISO): Market an alternative
regulatory tool, must itself be regulated
• No other deregulation rationalized this
way
• Justifies imposed markets, discontinuity
– Building efficiency in or letting it evolve?
– Naively abstracts from political interests
• A textbook standard of efficiency
– Are economists gullible?
One big short-term energy
market: The PoolCo ideal
• Regulators can make usual price / expense
comparisons to find abuses
• Rationalized by nature of electricity [?]
• Maximum scope for FERC to pressure states
on competition
• Utilities retail monopoly, customer “access” to
energy price
• No real market functions like this
• Maintains state regulatory redistributions
The small consumer, object of
our affections
• Important stakeholders advanced own
interests claiming concern for small users
• Rationalizes “benefits” like rate freeze
– Contradiction between value of wholesale
price signals and logic of freeze
– And small consumers can’t be metered
– Would small consumers really be excluded
from bilateral benefits?
Strategy and market design
• Primacy of stranding recovery
• Maintenance of utility customer shares
– As long-term strategy for diversification
– As managerial imperative
– Defense against distributed power
• Costs of participating in the
“collaborative”
Be careful what you want…
• San Diego G&E got everything it said it
wanted at the outset
– Stranding recovery
– A centralized PX that looked a lot like
PoolCo
– End of its generation responsibilities
– Dominant retail share at end of transition
California: Worse before it
gets better?
• Wholesale passthrough v. a range of
contracts
• Transitional rate freeze and stranding
“headroom” inhibit competitor entry
• Two basic problems: supply and
demand
• How about political risk insurance?
– That’s what old-time regulation was
Pennsylvania and Texas
• Both have relatively “price-to-beat”
– Kahn: Bribing customers isn’t competition
• PJM markets pre-existing, expansion of
bilaterals
• ERCOT is not “designing” a market, just
extending access to bilaterals
• If ERCOT turns out better, is it because
or in spite of FERC’s absence?
Abandoning or reforming?
• Remember the world we wanted to
leave?
• How possible to get back to utility ratebased generation?
– Long-term contracts?
– Export restrictions?
• Antibypass rates in abundance
Retail choice won’t go away
• Too many states
• New competitive actors learning politics
– Too many of them to allow resumption of
utility dominance
• Blurring of wholesale / retail distinctions
• FERC / state boundaries
– Retail markets in the Constellation merger
– Competition among states by example
Two overused metaphors: the
Genie and the Devil
• “The genie is out of the bottle”
– 1994 - 98: “and can’t be put back in”
– 1998 - 99: “and must be taught to behave”
– 2000:
“and has to go back in”
• “The devil is in the details”
– What case for politically influenced microdesign?
– Who planned details of all the other markets?