The Continuing Evolution of U.S. Electricity Markets

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Presentation transcript:

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

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 – 1978 Regulatory Framework Stayed Constant Vertically Integrated Utilities Dominated The Industry Evolution of U.S. Power Markets © 2007 ISO New England Inc.

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.

Wholesale Power Markets, March 2007 Source: Federal Energy Regulatory Commission http://www.ferc.gov/industries/electric/indus-act/rto/rto-map.asp Evolution of U.S. Power Markets © 2007 ISO New England Inc.

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.

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.

Status of State Electric Industry Restructuring Activity as of February 2003 Source: U.S. Energy Information Administration ttp://www.eia.doe.gov/cneaf/electricity/chg_str/restructure.pdf Evolution of U.S. Power Markets © 2007 ISO New England Inc.

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.

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.

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.