1. 1/16/2019
Univ. of Chicago/Argonne Agents 2002, Oct. 12, Introduction to Electricity Regulation
Randal C. Picker
Leffmann Professor of Commercial Law
Senior Fellow, The Computation Institute
The Law School
The University of Chicago
Copyright © Randal C. Picker. All Rights Reserved.

2. Copyright © 2001-02 Randal C. Picker
Background and Status
Energy Policy Act of 1992
FERC Orders
Order 888 (1996), on rehearing Order 888-A (1997), on rehearing Order 888-B (1997), on rehearing Order 888-C (1998)
Affirmed in Transmission Access Policy Study Group v. FERC, 225 F.3d 667 (D.C. Cir. 2000)
Sup Ct resolved case on Mar. 4, 2002
Order 889 (1996)
Order 2000, 65 FR 810 (Jan. 6, 2000), on rehearing, Order 2000-A, 65 FR (Mar. 8, 2000)
January 16, 2019
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3. Changes in the Underlying Cost Structure
Past
Vertically-integrated local natural monopolies
Economies of Scale in Electricity Generation
Through the 1960s: Bigger is better
Now
Switch to smaller plants, and possibility of distributed generation (grow your own electricity)
Substantial increase in downtime for larger plants (5x as likely to be down for 600 MW plant as compared to 100 MW plant)
Smaller plants allow for closer match of new supply and market demand (fewer unnecessary dinosaurs) (10 year lead for 500 MW plant, 1 year lead for 50 to 150 MW plants)
January 16, 2019
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4. Cost Figures & Transmission
Cost differences favor smaller plants
Combined cycle plants at < 3 cents per kWh
Large coal at 4 to 7 cents per kWh
Nuclear at 9 to 15 cents per kWh
Early 1999: 4 to 5 MW plants at < 3 cents per kWh (PUF, 2/1/99, p19)
Transmission Distance Improvements
Less loss from long transmissions
Makes possible generation competition at a distance
January 16, 2019
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5. Orders 888/889: Creating a Nondiscriminatory Market
Key Features
Open-Access Tariffs
Equal Access Online Information System
Functional Unbundling, Not Corporate Unbundling
Wholesale v. Retail
Order 888: only wholesale power markets
Retail: state level
Separation of activities, but not corporate separation or divestiture
January 16, 2019
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6. Orders 888/889: Creating a Nondiscriminatory Market
Major Steps
Separate rates for generation, transmission and ancillary services
Common information system, for both the owner of the grid and outsiders (the OASIS—Open Access Same-Time Information System)
Owner of transmission grid must “buy” as outsider would
January 16, 2019
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7. Copyright © 2001-02 Randal C. Picker
California AB 1890
Key Dates
Passed Sept. 24, 1996
Retail competition by Jan. 1, 1998
Transition to be done by March 31, 2002
Big Picture Goals
10% price cut immediately, 20% eventually
Move from local monopolies, with exclusive territories and corresponding service obligations, to unbundled, open access transmission
January 16, 2019
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8. Copyright © 2001-02 Randal C. Picker
AB 1890 Path
From
“the regulatory framework existing on January 1, 1997, in which retail electricity service is provided principally by electrical corporations subject to an obligation to provide ultimate consumers in exclusive service territories with reliable electric service at regulated rates” To
“a framework under which competition would be allowed in the supply of electric power and customers would be allowed to have the right to choose their supplier of electric power.”
January 16, 2019
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9. Copyright © 2001-02 Randal C. Picker
AB 1890 Goals
Six Goals
1. Accelerated, equitable, nonbypassable recovery of transition costs associated with uneconomic utility investments and contractual obligations.
2. An immediate rate reduction of no less than 10 percent for residential and small commercial ratepayers.
3. The financing of the rate reduction through the issuance of “rate reduction bonds” that create no new financial obligations or liabilities for the State of California.
January 16, 2019
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10. Copyright © 2001-02 Randal C. Picker
AB 1890 Goals
Six Goals
4. An anticipated result through implementation of this act of a subsequent, cumulative rate reduction for residential and small commercial customers of no less than 20 percent by April 1, 2002.
5. A “fire wall” that protects residential and small business consumers from paying for statewide transition cost policy exemptions required for reasons of equity or business development and retention.
6. Protection of the interests of utility employees who might otherwise be economically displaced in a restructured industry.
January 16, 2019
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11. Copyright © 2001-02 Randal C. Picker
ISO Roles
345: ISO
The Independent System Operator shall ensure efficient use and reliable operation of the transmission grid consistent with achievement of planning and operating reserve criteria no less stringent than those established by the Western Systems Coordinating Council and the North American Electric Reliability Council.
350: ISO
(e) Identifies the need for additional generation reserves and other voltage support equipment, if any, or other resources that may be necessary to carry out its functions.
(f) Identifies transmission capacity additions that may be necessary at certain times of the year or under certain conditions.
January 16, 2019
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12. Copyright © 2001-02 Randal C. Picker
PX Role
355: PX
The Power Exchange shall provide an efficient competitive auction, open on a nondiscriminatory basis to all suppliers, that meets the loads of all exchange customers at efficient prices.
January 16, 2019
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13. Copyright © 2001-02 Randal C. Picker
Cal ISO Status: 5/8/02
January 16, 2019
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14. The Situation in California
The Key Issues
Short Term Contracts and The Requirement to Sell Through the PX
Underscheduling of Load and Resources
Governance of PX and ISO
Auction Design
Demand Response
January 16, 2019
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15. Cal Sources of Electricity
1/16/2019
Cal Sources of Electricity
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16. Capacity Growth v. Demand Growth
January 16, 2019
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17. Copyright © 2001-02 Randal C. Picker
Residential Rates
January 16, 2019
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18. Copyright © 2001-02 Randal C. Picker
Sum 2000: Vols and Prices
January 16, 2019
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