Transcript America’s Evolving Electricity Markets: Lessons Galore Dr. Branko Terzic Executive Director, Deloitte center for Energy Solutions and Regulatory Policy Leader, Energy & Resources Deloitte Services.

America’s Evolving Electricity Markets:
Lessons Galore
Dr. Branko Terzic
Executive Director, Deloitte center for Energy Solutions and
Regulatory Policy Leader, Energy & Resources
Deloitte Services LP
November 18, 2011 for
HED 20th Forum, Zagreb Croatia
Primary Energy Consumption by Source and Sector, 2010 (quadrillion Btu)
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Regional reliability organizations
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National average retail price in 1999 was 6.66 cents/ kWh
NH
11.75
WT
4.10
OR
4.87
MN
5.83
ID
3.98
CA
9.34
NV
5.93
CO
5.95
IA
5.93
KS
6.22
OK
5.37
NM
6.58
TX
6.04
AK
9.78
NY
10.4
MI
7.14
NE
5.31
UT
4.86
AZ
7.23
WI
5.53
SD
6.35
WY
4.30
IL
6.98
IN
5.29
MO
6.07
PA
7.57
OH
6.40
WV
5.09
KY
4.17
MA
9.16
RI
9.02
NJ
9.99
CT
9.96
MD
DE
7.12 7.04
DC
7.45
SC
5.57
AR
5.68
LA
5.81
VA
5.86
NC
6.44
TN
5.63
MS
5.65
AL
5.54
GA
6.24
FL
6.85
HI
11.97
ME
9.77
VT
10.28
ND
5.49
MT
5.01
Cents per kWh
0.499
5.00 – 5.99
6.00 – 6.99
Over 7.00
Source: Energy Information Agency
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Fuel Mixes to Generate Electricity
*Includes generation by
agricultural waste, landfill gas
recovery, municipal solid waste,
wood, geothermal, non-wood
waste, wind, and solar.
** Includes generation by tires,
batteries, chemicals, hydrogen,
pitch, purchased steam, sulfur,
and miscellaneous
technologies.
Sum of components may not
add to 100% due to independent
rounding.
Source: U.S. Department of
Energy, Energy Information
Administration, Power Plant
Operations Report (EIA-923);
2009 preliminary generation
data.
May 2010
© 2010 by the Edison Electric
Institute. All rights reserved.
4
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Status of restructuring
DC
Restructuring Active1
Restructuring Delayed2
Restructuring Suspended3
Restructuring Not Active4
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States with Deregulated Generation
Regulated
Deregulated
6
Source: Morgan Stanley, April 2010
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29 States + DC and PR Have RPS (8 States Have Goals)
U.S. RPS Policies
WA: 15% x 2020*
MN: 25% x 2025
MT: 15% x 2015
(Xcel: 30% x 2020)
ND: 10% x 2015
OR: 25% x 2025 (large utilities)*
CO: 30% by 2020 (IOUs)
NV: 25% x 2025*
10% by 2020 (co-ops & large munis)*
MA: 22.1% x 2020 New
RE: 15% x 2020
(+1% annually thereafter)
WI: Varies by utility;
~10% x 2015 statewide
RI: 16% x 2020
NY: 29% x 2015
CT: 27% x 2020
OH: 25% x 2025†
IA: 105 MW
KS: 20% x 2020
UT: 20% by 2025*
NH: 23.8% x 2025
2015*
PA: ~18% x 2021†
IL: 25% x 2025
CA: 33% x 2020
New RE: 10% x 2017
MI: 10% & 1,100 MW x
5% - 10% x 2025 (smaller utilities)
SD: 10% x 2015
ME: 30% x 2000
VT: (1) RE meets any
increase in retail sales x
2012;
(2) 20% RE & CHP x 2017
IN: 15% x 2025†
WV: 25% x 2025*†
VA: 15% x 2025*
NJ: 20.38% RE x 2021
+ 5,316 GWh solar x 2026
MO: 15% x 2021
AZ: 15% x 2025
OK: 15% x 2015
MD: 20% x 2022
NC: 12.5% x 2021 (IOUs)
10% x 2018 (co-ops & munis)
NM: 20% x 2020 (IOUs)
DE: 25% x 2026*
DC
10% x 2020 (co-ops)
DC: 20% x 2020
PR: 20% x 2035
TX: 5,880 MW x 2015
HI: 40% x 2030
Renewable portfolio standard
Renewable portfolio goal
Source: DSIRE, November 2011
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Copyright
*
†
Extra credit for solar or customer-sited renewables
Includes non-renewable alternative resources
Regional Transmission Organizations
Alberta Electric System
Operator (AESO)
Ontario Independent
Electricity System
Operator
Midwest ISO
(MISO)
New Brunswick
System Operator
(NBSO)
New England ISO
New York ISO
California ISO
(CAISO)
Southwest Power
Pool (SPP) RTO
Electric Reliability Council of
Texas (ERCOT) ISO
Source: FERC October 2011
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Copyright
PJM
Interconnection
(PJM)
Jurisdiction: state and federal
Federal Energy
Regulatory Commission
(FERC)
• Wholesale electric
rates setting
• “Market price” if not
market dominant
• Electric transmission
rates
• Cannot order retail
access to consumers
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State Public Service (or
Utility) Commission
(PSC or PUC)
• Retail rate setting
• Can authorize sale of
utility owned power
plants
• Can authorize TPA,
“retail access” to
consumers
A early view of the corporation
“It is not because a corporation has a large capital or
transacts a large and profitable business that it is an
injury to community or a menace to prosperity. On
the contrary, the development and growth of modern
business have made large aggregations of capital
absolutely necessary, and such capital is fairly
entitled to a reasonable and legitimate profit. The
wrong is done and the injury inflicted when such
combination of capital are enabled, by means
adopted for the purpose, to control prices, stifle
competition and create a monopoly.”
Source: La Follette edited by Robert S. Maxwell. Writings of “Fighting Bob” LaFollette
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FERC: Independent Commission
• 5 Commissioners, 5-year terms, 3 from President’s political party (now
Democratic), 2 from the opposition party (now Republican) or Independent
• President nominates, Senate confirms
• Commissioners
Commissioner
John Norris
(D)
June 30, 2012
Commissioner
Cheryl LaFleur
(D)
June 30, 2014
Chairman
Jon
Wellinghoff
(D)
June 30,
2013
Commissioner
Marc Spitzer
(R)
June 30, 2011
Commissioner
Philip Moeller
(R)
June 30, 2015
11
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FERC electricity responsibilities
• Approval of rates for wholesale sales of electricity and transmission in
interstate commerce for jurisdictional utilities, power marketers, power
pools, power exchanges and independent system operators.
• Oversight of the issuance of certain stock and debt securities,
assumption of obligations and liabilities, and mergers.
• Review of officer and director positions held between top officials at utility
companies and certain firms with which they do business.
• Review of rates set by the federal power marketing administrations.
• Review of exempt wholesale generator status.
• Certification of qualifying small power production and cogeneration
facilities.
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Old structure vs. new
• Production - monopoly
• Production - competitive
• Transmission - monopoly
• Transmission - monopoly
• Distribution - monopoly
• Distribution - monopoly
• Sales, marketing, services/
supply - monopoly
• Sales, marketing, services/
supply - competitive
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Regulation electric jurisdiction
• Electric generation –
– if wholesale then regulated by FERC
• If monopoly the at cost of service rates
• If found competitive then at market based prices
– If not selling at wholesale and in rate base then state regulated
• Power transmission –
– Independent transmission company monopoly regulated by FERC
– Transmission as part of utility with distribution (possibly generation too)
•
•
Third party access –”wheeling” tariff from FERC
In state costs for native load service in state retail rates
• Electricity distribution –
– monopoly regulated by states
• Electricity supply, marketing and billing –
– retail access subject to state by state determination
– Some state have “unbundled”, marketers permitted or required
– Others continue retail monopoly
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California Market Structure
California
ISO
• Transmission Security
• System Dispatch
• Ancillary Services
Dept. of Water Resources
• Balanced Schedules,
• Ancillary Bids
Energy Bids
Load Bids
Power Exchange
Scheduling Coordinator
• Scheduling
• Market Clearing Price
• Bilateral Deals
EMS
SCADA
GenCo
ESP
UDC
Aggregator
Municipal
Utility
IOU
Commercial & Industrial
Non-Regulated
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Power
Marketer
California Power Market “Crises” 2000
General causes
Fundamental market structure problems
Operational problems
Competitive market forces
Specific causes
High demand growth,
Supply deficiency,
Fuel price increases,
Government’s faulty market design
Flaws in retail rate design
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California restrictions in law
• Law AB 1890
• Investor owned
utilities could not
pursue a balanced
portfolio of long term
and intermediate
contracts
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• IOU’s were to buy only
on day ahead spot
market and only on
California Power
Exchange
• Competitive market
failed to materialize
California State Auditor Report
• “Energy Deregulation: The Benefits of Competition
were undermined by Structural Flaws in the Market,
Unsuccessful Oversight, and Uncontrollable
Competitive Forces”
• www.bsa.ca.gov/bsa/
–March 22, 2001
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The FERC’S Goals after California
1.
2.
3.
4.
Reduce wholesale electric prices (FERC sets wholesale and transmission rates)
1.
Make markets work
2.
Not protect competitors
Incent investment in infrastructure
1.
Transmission,
2.
Generation,
3.
Demand response
Incent development of technology
1.
Demand response
2.
Efficiency gains
Protect the environment
1.
Encourage demand response
2.
Use of more efficient generation
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ROADMAP FOR FERC’S STANDARD MARKET DESIGN
PROPOSAL
Standards:
•Transmission (T)
•Trading
•Security
FERC
[All T]
Existing
Contracts
ITP
(RTO,
Other)
Formal
State
Role
Regulators Independence
New T Tariff
NAS
T Pricing for
capital costs,
Access Charges
Regional
Resource
Planning, ATC,
OASIS
Transmission
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Resource
Adequacy
LMP
Spot
Markets
Market
Power
Mitigation
CRRs
CRR
Allocation
& Auction
Market
Monitors
Only Supplements Long
Term 2-Party Contracts for
Power
Markets
Customer
Protection
FERC Standard Market Design proposal
• Same set of proposed rules for all users of the grid
–Open access and flexible transmission service
–Administered by fair and independent entity
• Market rules protect against market manipulation
–Addresses Enron trading strategies
• Customer protection through market power
mitigation measures and oversight
• Clear transmission pricing and planning policies for
grid expansion
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Protect Reliability
• Resource adequacy requirement for load to be
imposed on distribution electricity delivery providers
• Security constrained dispatch for day-to-day
operations
• Encourages development of new infrastructure
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Coordination with States…
• Regional State Advisory Committees (RSAC)
– Resource adequacy, transmission planning, rate design and revenue
requirements, market power mitigation and market monitoring, demand
response and load management, distributed generation and interconnection
policies, energy efficiency and environmental issues and RTO management
and budget review.
– TO be formed in each region, no legal authority to make decisions.
• Multi-state Entities for planning, certification and siting at regional level
– Compliments recommendation of the National Governors Association
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Elements of Standard Market Design
• Independent Transmission Provider (ITP)
– Operates transmission facilities and administers tariff
– Governance requirements are specified to include all major “stakeholders”
– Every ITP becomes FERC-jurisdictional utility
• Network Access Service
– Flexible transmission service with financially based “transmission rights”
• Tradable Congestion Revenue Rights (CRR) (4 Year transition provided)
NEW MARKET!!
• Access charge (demand) to recover embedded cost based on % of load
ratio share of transmission
• Revenue requirement to be collected from this charge (SFV type?)
• Open and transparent energy spot markets
– Day ahead and real-time markets
• Congestion management through Locational Marginal Pricing (LMP)
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Elements of Standard Market Design
• Market mitigation and monitoring
– Focus-local market power and lack of price responsive demand
– Monitoring of markets and rules of conduct
• Resource adequacy requirement
– Forward-looking requirement developed on a regional basis
– Encourages long-term contracts for supply
– Encourages development of price responsive demand
• Restructuring not deregulation
• Markets that work benefit customers
• Goal of SMD is to make wholesale electric markets for customers and develop
infrastructure
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FERC Wholesale Market issues 2011
• Electric
–Compliance issues
• Are companies in compliance?
• Monitoring compliance
–Regulating electric power markets
• Established regional transmission operator (RTO)/independent
system operator (ISO)
• New RTO/ISO rules
• Pricing ancillary services & electric storage services (NOPR)
• Frequency response services (Final rule)
• Demand response (Final rule)
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Key FERC electric issues 2011
• Electric
–Smart Grid
–Power markets
• Demand Response
• Integration of renewable generation
• Enhance market surveillance
–Regulating electricity transmission
• Transmission tariffs
– Incentives to build
• Reliability
– Transmission planning and cost allocation
– New principle is that costs will be allocated to
“benefits” and no costs allocated outside of region,
unless other region approves
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Purpose of the Transmission Planning and Cost Allocation NOPR
FERC proposes regions , not interconnections, develop
transmission plans and cost allocation methods that
consider the benefits of new transmission facilities,
including reliability, economics and complying with
state/federal laws or regulations
FERC also proposes to require each pair of neighboring
regions to coordinate transmission planning and cost
allocation
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Future federal regulatory issues
• Federal climate change legislation
– New carbon dioxide legislation
• Federal energy legislation
– Preemption of states
• Transmission
• Renewable portfolio standards
• Individual FERC rate case issues
– Rate of return
– Cost of service
• FERC power market regulation
– Operating rules
– Compliance
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John Kenneth Galbraith
• “One of the oldest puzzles of politics is who is to
regulate the regulators. But an equally baffling
problem, which has never received the attention it
deserves, is who is to make wise those who are
required to have wisdom.”
• THE GREAT CRASH 1929
• 1954 Houghton Mifflin Harcourt, Boston, New York
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Management and regulation
• “When regulation is required it is management’s job
to get the right regulation enacted.”
• “Management – and not only business management
– has shunned this responsibility.”
• The Daily Drucker by Peter F. Drucker
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Classic References
• Deloitte Regulated Utilities
Manual
• Accounting for Public
Utilities by Robert Hahne
and Gregory Aliff
• Hard Truths: Facing the
Hard Truths About Energy
by The National Petroleum
Council
• Stern Review: The
Economics of Climate
Change
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• Principles of Public Utility
Rates by James C.
Bonbright (1968), later with
Albert L. Danielson, David
R. Kamerschen (1988)
• The Regulation of Public
Utilities by Charles Phillips
• The Age of Oil by Leonardo
Maugeri
• The Economics of
Regulation by Alfred Kahn
Newer References
• Restructuring Electricity
Markets by Charles J.
Cicchetti and Colin M. long
• Smart Power by Peter FoxPenner
• Energy Trading and
Investing by Davis W.
Edwards
• Fundamentals of Energy
Regulation by Jonathan
Lesser and Leonardo R.
Giacchino
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GENERAL ENERGY
• Beyond The Age of Oil by
Leonardo Maugeri
• Hot, Flat and Crowded by
Thomas Friedman
• The Quest by Daniel Yergin
Thank you.
Questions?
Branko Terzic
[email protected]
+1 703 251 4350
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