Lave CEIC 2-5-071 Assessing Restructured Electricity Markets An APPA Symposium Lester B. Lave...
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Transcript of Lave CEIC 2-5-071 Assessing Restructured Electricity Markets An APPA Symposium Lester B. Lave...
Lave CEIC 2-5-07 1
Assessing Restructured Electricity MarketsAn APPA Symposium
Lester B. Lave
Carnegie Mellon Electricity Industry Center
February 5, 2007
Lave CEIC 2-5-07 2
Accomplishments of RORR
• Minimized risk to investors => rapid expansion of electrical system after 1910
• Incentives for reliability & customer service
• Universal service
• Help other utilities
National Academy of Engineering: Electricity system greatest engineering accomplishment of 20th century
Lave CEIC 2-5-07 3
Problems with RORR• Over-investment – gold plating
• PUC Red Tape
• PUC knowledge of Business & technology
• Focus on Efficiency or Equity or Politics?
• Revolving door for commissioners
• Punish risk-taking; little R&D
• Hiring risk averse managers & engineers
Lave CEIC 2-5-07 4
Goals for Deregulation
Lower Price now & in future through competition
• Customer choice
• Shift risks to investors
• Improve operations
• Speed innovation
• Lessen regulation & give managers the same freedom as unregulated companies
Lave CEIC 2-5-07 5
Consequences of Deregulation
• Price levels & cross-subsidization
• Incentives for market manipulation
• Investment incentives: generation & transmission
• Industry Profits (adjust for risk & fuel price)
• Utilities enter other businesses (foreign utilities, water companies, telecommunications…)
Lave CEIC 2-5-07 6
Today is the First Day of the Rest of Your Life
• PJM ad hoc adjustments: market monitor, capacity market, mitigation payments …
More radical change? What else comes with new legislation & rulemaking?
• Re-regulation?• Redesign of competitive market?
– Eliminate hourly market?– Real time pricing for large customers– Fuel-Technology portfolio balancing
Lave CEIC 2-5-07 7
Redesign Competitive Market?
• Eliminate incentive to manipulate market
• Have retail price reflect wholesale price
• Investment incentives for generation
• Balance Fuel-Technology portfolio (risks)
• RTO controls transmission (investment)
• Incentives for locating generation & load
Lave CEIC 2-5-07 8
Success of Deregulation?
• Lowering Price: (absolute or relative to RORR utilities?)
• Customer choice (large & small customers)• Improving operations• Shifting risks to investors• Incentives to invest• Profits to companies• Lower regulation more manager choice• Speeding innovation