Evolution of Electricity Markets in U.S.A.

Transcription

1 Evolution of Electricity Markets in U.S.A. Florence School of Regulation Florence, Italy July 1, 2014 Ashley C. Brown Executive Director, Harvard Electricity Policy Group Harvard Kennedy School Harvard University Of Counsel, Greenberg Traurig LLP

2 Historical Overview

3 RTO and non RTO regions in the U.S. Source:

4 Generation mix in the U.S. Source:

5 Electricity consumption by sector in the U.S. Source:

6 Beginnings Edison/Westinghouse debate Westinghouse wins debate/monopolies begin operations Licenses/regulation by city council Expansion along interurban railroad lines Regulation by state legislatures

7 Progressive Era Reforms ( ) Creation/expansion of independent state regulatory agencies Consensus of reformers and monopolists Evolution of rate base regulation Interstate sales (Attleboro decision) Public Power (Tom Johnson) The people need to own the utilities before the utilities own the people.

8 New Deal Reforms Filling gaps in Regulation Federal Power Act (creation of Federal Power Commission) Public Utilities Holding Company Act Securities and Exchange laws and regulation Rural Cooperatives TVA, Bonneville, and other Federal entities

9 Regulatory Jurisdiction FERC: Wholesale Market and Rates Transmission Access and Pricing STATE: Retail Market and Rates Transmission Licensing/Siting

10 Non-legal/De Facto Reforms Creation of Regional Reliability Councils (private regulation) Reserve requirements Interconnection rules Reliability coordination Creation of NEPOOL and PJM Power Pools Creation of Western Interconnection Reliability Protocols Voluntary until 2005 Energy Policy Act

11 Integrated Resource (Lease Cost) Planning ( ) Internalizing social externalities (e.g. environment) Public participation in planning Regulatory pre-approvals/socialization of risks Promotion of energy efficiency/rationalizing supply incentives

12 Movement toward Competition (1978 to Present)

13 Public Utilities Regulatory Practices Act of 1978 (PURPA) Qualified Facilities Co-Generation Renewables Mandatory avoided cost purchases Avoided cost methodology: administrative determination/competitive solicitation Promote energy efficiency

14 Energy Policy Act of 1992 Mandatory transmission access (Transaction by Transaction) Enabling independent power producers Enabling international investment

15 FERC Actions (Wholesale Market) Market Based Pricing Generic open transmission access Functional unbundling/deverticalization Promotion of Independent System Operators Except in Southeast and West Market design: laissez faire/prescriptive Security Constrained Economic Dispatch (ISO & Power Exchange issues) Evolution of transmission pricing Locational Marginal Cost Pricing Base Rates Right of First Refusal in Transmission Expansion

16 FERC Actions (cont d) All Generators Paid Market Clearing Price Capacity Markets Demand Response Participatory Planning

17 Financial Products Separation of Finance and Physical Markets Hedge Products Trading Asset Based Speculative Financial Transmission Rights Jurisdictional Disputes Between FERC and CFTC

18 State Actions (Retail Market) California market model (wholesale price flows through) Pennsylvania market model (shopping credit) Texas market model (mandatory load shifts) New Jersey default auction Present status: 50% of states have opened retail markets Stranded Cost Recovery Distributed Generation

19 Characteristics of US Regulation

20 Rate Making Options in Regulation of Monopolies Rate of Return vs. Price Cap vs. Revenue Cap Rate of Return Formula (Capital Investment Depreciation)ROR + Expenses) Price Cap Formula (Cost Basis)RPI (-x?) Revenue Cap Formula (Cost Basis)RPI (-x?) (Assumed Volume) (Demand)

21 Rule Making Options in State Regulation of Monopolies Rate of Return Fact intensive Regulatory review of management Direct review of profits Factors may or may not be internalized Rates may or may not have specific terms in time Price Cap Theory intensive Clear boundary between management and regulation Indirect review of profits Internalization of many factors (but not all) Rates may or may not have specific terms in time Revenue Cap Elements of both rate of return and price cap with addition of assumed demand (volume) Fixed/Variable Implications

22 Challenges in Pricing Static vs. Dynamic Pricing Disconnect Between Wholesale and Retail Markets Distribute Generation Demand Side Efficiency

23 Regulatory Discretion Legal Powers Define Regulator can change rules Procedural safeguards Ability to adjust to changed circumstances Short term uncertainty Politically stable

24 FERC Pricing Just and Reasonable Market Based/Cost Based

25 Challenges Going Forward Primitive Retail Pricing Monetizing Externalities Jurisdictional Maze Lack of Clarity in Trading Rules