1. The Continuing Evolution of U.S. Electricity Markets
David LaPlante APEX Conference
October 15, 2007

2. State Governments Regulate Retail Power
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 – Regulatory Framework Stayed Constant
Vertically Integrated Utilities Dominated The Industry
Evolution of U.S. Power Markets © 2007 ISO New England Inc.

3. 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 © 2007 ISO New England Inc.

4. Wholesale Power Markets, March 2007
Source: Federal Energy Regulatory Commission
Evolution of U.S. Power Markets © 2007 ISO New England Inc.

5. 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 © 2007 ISO New England Inc.

6. 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 © 2007 ISO New England Inc.

7. Status of State Electric Industry Restructuring Activity as of February 2003
Source: U.S. Energy Information Administration ttp://
Evolution of U.S. Power Markets © 2007 ISO New England Inc.

8. 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 © 2007 ISO New England Inc.

9. 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 © 2007 ISO New England Inc.

10. 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 © 2007 ISO New England Inc.