fw : new report on lessons from california fyi , kim .
- - - - - original message - - - - -
from : gold , amy [ mailto : agold @ coral - energy . com ]
sent : wednesday , august 01 , 2001 11 : 25 am
to : watson , kimberly
subject : fw : new report on lessons from california
i just got this and thought you might find it interesting as well .
amy
- - - - - - - - - inline attachment follows - - - - - - - - -
from :
to : eric @ ehirst . com
date : wednesday , august 1 , 2001 12 : 16 : 55 gmt
subject :
dear colleague ,
the edison electric institute just published a paper , the california
electricity crisis : lessons for other states , which i wrote . the paper is
available on the publications page of my website , www . ehirst . com
. please let me know if you have any comments on
the paper .
here is a summary of the paper :
california was supposed to show the rest of the nation a brighter
electricity future . that future , as outlined by the california public
utilities commission in 1994 , envisioned an electricity industry featuring
competitive markets . such markets were intended to produce lower costs and
more choices for consumers , while ensuring profits for efficient energy
suppliers and encouraging the retirement of old , inefficient power plants .
although the first two years of restructuring ( beginning in april
1998 ) seemed to bear out these promises , the last year has been a disaster
for california ' s electricity consumers , taxpayers , and electric utilities .
part of the fallout from california ' s electricity crisis is considerable
concern - even opposition - in other states to restructuring the electricity
industry .
although a few states have decided , based on the california
experience , not to restructure , i believe that is the wrong outcome .
instead , the primary lessons other states should learn from california are
that competitive markets can work ; competition is not to blame for
california ' s problems ; and basic economic principles of supply , demand , and
prices affect market outcomes .
section 2 of this paper briefly reviews the history of electricity
regulation and restructuring in california and the problems that occurred
beginning in may 2000 . section 3 , the heart of this paper , offers guidance
to other states on the key ingredients of a competitive electricity
industry . this section makes several points :
* maintain a favorable investment and regulatory climate for new
generation to ensure that enough generation capacity is online and planned
to meet growing loads .
* ensure that enough infrastructure ( transmission capacity and natural
gas pipeline capacity ) is in place and planned to meet growing loads ,
maintain reliability , connect new generators to the grid , support large
regional markets , and provide fuel to power plants .
* encourage retail customers to participate in dynamic - pricing and
voluntary - load - reduction programs ( i . e . , couple retail and wholesale
markets ) .
* create honest retail competition : avoid standard - offer rates with
artificial discounts and create conditions that encourage many companies to
offer retail services without favoring individual competitors .
* encourage electricity suppliers to manage and diversify their supply
and price risks .
* create efficient and integrated wholesale markets for energy ,
ancillary services , and transmission congestion .
* monitor and minimize horizontal market power ( generation ) and
vertical market power ( combined ownership and operation of generation and
transmission ) .
ultimately , competitive markets for electricity will lower costs and
prices , better align consumer prices with producer costs , improve producer
efficiency in both investment and operation , maintain or improve
reliability , and yield greater innovation in customer services and pricing
options .
but , this transition from one industry structure to another is
turning out to be long and complicated . it is complicated because
electricity is so important to our modern , high - tech society ; electricity is
our most flexible fuel , providing light , heat , motive power , and the energy
to operate all our electronic equipment . also , electricity truly is a
real - time product for which production and consumption must occur at the
same time .
although the problems that have occurred in california are
substantial and worrisome , regulators and legislators in other states should
focus on the long - term benefits of competitive electricity markets and
accept the possible short - term problems that may occur . they also need to
recognize that wholesale markets are regional in scope and extend far beyond
the boundaries of any single state . finally , competition in retail and
wholesale markets must be coordinated ; in particular , it is not possible to
have competitive wholesale markets unless at least some retail load faces
time varying prices .
if states restructure properly to create competitive markets for
wholesale energy and retail services , we should all benefit . consumers will
enjoy lower prices , they will have many more choices of energy services and
price - risk tradeoffs , reliability will be improved because most reliability
services will be obtained through markets instead of by engineering edict ,
and the financial risks associated with building and operating power plants
will be assigned properly to investors rather than consumers .
eric
eric hirst
consulting in electric - industry restructuring
106 capital circle
oak ridge , tn 37830
* 865 - 482 - 5470 ( phone & fax ) * eric @ ehirst . com
http : / / www . ehirst . com
fw : new report on lessons from california
fyi , kim .
- - - - - original message - - - - -
from : gold , amy [ mailto : agold @ coral - energy . com ]
sent : wednesday , august 01 , 2001 11 : 25 am
to : watson , kimberly
subject : fw : new report on lessons from california
i just got this and thought you might find it interesting as well .
amy
- - - - - - - - - inline attachment follows - - - - - - - - -
from :
to : eric @ ehirst . com
date : wednesday , august 1 , 2001 12 : 16 : 55 gmt
subject :
dear colleague ,
the edison electric institute just published a paper , the california
electricity crisis : lessons for other states , which i wrote . the paper is
available on the publications page of my website , www . ehirst . com
. please let me know if you have any comments on
the paper .
here is a summary of the paper :
california was supposed to show the rest of the nation a brighter
electricity future . that future , as outlined by the california public
utilities commission in 1994 , envisioned an electricity industry featuring
competitive markets . such markets were intended to produce lower costs and
more choices for consumers , while ensuring profits for efficient energy
suppliers and encouraging the retirement of old , inefficient power plants .
although the first two years of restructuring ( beginning in april
1998 ) seemed to bear out these promises , the last year has been a disaster
for california ' s electricity consumers , taxpayers , and electric utilities .
part of the fallout from california ' s electricity crisis is considerable
concern - even opposition - in other states to restructuring the electricity
industry .
although a few states have decided , based on the california
experience , not to restructure , i believe that is the wrong outcome .
instead , the primary lessons other states should learn from california are
that competitive markets can work ; competition is not to blame for
california ' s problems ; and basic economic principles of supply , demand , and
prices affect market outcomes .
section 2 of this paper briefly reviews the history of electricity
regulation and restructuring in california and the problems that occurred
beginning in may 2000 . section 3 , the heart of this paper , offers guidance
to other states on the key ingredients of a competitive electricity
industry . this section makes several points :
* maintain a favorable investment and regulatory climate for new
generation to ensure that enough generation capacity is online and planned
to meet growing loads .
* ensure that enough infrastructure ( transmission capacity and natural
gas pipeline capacity ) is in place and planned to meet growing loads ,
maintain reliability , connect new generators to the grid , support large
regional markets , and provide fuel to power plants .
* encourage retail customers to participate in dynamic - pricing and
voluntary - load - reduction programs ( i . e . , couple retail and wholesale
markets ) .
* create honest retail competition : avoid standard - offer rates with
artificial discounts and create conditions that encourage many companies to
offer retail services without favoring individual competitors .
* encourage electricity suppliers to manage and diversify their supply
and price risks .
* create efficient and integrated wholesale markets for energy ,
ancillary services , and transmission congestion .
* monitor and minimize horizontal market power ( generation ) and
vertical market power ( combined ownership and operation of generation and
transmission ) .
ultimately , competitive markets for electricity will lower costs and
prices , better align consumer prices with producer costs , improve producer
efficiency in both investment and operation , maintain or improve
reliability , and yield greater innovation in customer services and pricing
options .
but , this transition from one industry structure to another is
turning out to be long and complicated . it is complicated because
electricity is so important to our modern , high - tech society ; electricity is
our most flexible fuel , providing light , heat , motive power , and the energy
to operate all our electronic equipment . also , electricity truly is a
real - time product for which production and consumption must occur at the
same time .
although the problems that have occurred in california are
substantial and worrisome , regulators and legislators in other states should
focus on the long - term benefits of competitive electricity markets and
accept the possible short - term problems that may occur . they also need to
recognize that wholesale markets are regional in scope and extend far beyond
the boundaries of any single state . finally , competition in retail and
wholesale markets must be coordinated ; in particular , it is not possible to
have competitive wholesale markets unless at least some retail load faces
time varying prices .
if states restructure properly to create competitive markets for
wholesale energy and retail services , we should all benefit . consumers will
enjoy lower prices , they will have many more choices of energy services and
price - risk tradeoffs , reliability will be improved because most reliability
services will be obtained through markets instead of by engineering edict ,
and the financial risks associated with building and operating power plants
will be assigned properly to investors rather than consumers .
eric
eric hirst
consulting in electric - industry restructuring
106 capital circle
oak ridge , tn 37830
* 865 - 482 - 5470 ( phone & fax ) * eric @ ehirst . com
http : / / www . ehirst . com