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Lave CEIC 2-5-071 Assessing Restructured Electricity Markets An APPA Symposium Lester B. Lave Carnegie Mellon Electricity Industry Center February 5, 2007.

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Presentation on theme: "Lave CEIC 2-5-071 Assessing Restructured Electricity Markets An APPA Symposium Lester B. Lave Carnegie Mellon Electricity Industry Center February 5, 2007."— Presentation transcript:

1 Lave CEIC 2-5-071 Assessing Restructured Electricity Markets An APPA Symposium Lester B. Lave Carnegie Mellon Electricity Industry Center February 5, 2007

2 Lave CEIC 2-5-072 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 20 th century

3 Lave CEIC 2-5-073 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

4 Lave CEIC 2-5-074 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

5 Lave CEIC 2-5-075 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…)

6 Lave CEIC 2-5-076 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

7 Lave CEIC 2-5-077 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

8 Lave CEIC 2-5-078 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

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