Opening Electricity Markets: Expectations, Realities

1
Opening Electricity MarketsExpectations,
Realities

• Tim BrennanProfessor, Public Policy and
  Economics, UMBC
• Senior Fellow, Resources for the Future
• brennan_at_umbc.eduKeeping the Lights on in
  Maryland How Can We Do It
• Greater Baltimore Committee Energy Symposium
• Baltimore, MDDec. 9, 2009

2
Have markets worked? Easy to be a naysayer

• The record is at least mixed, if not better
• General evidence of greater operational
  efficiency
• Success for industrial, commercial users
• gt 69 CI, 94 large customers have switched
• Disasters (outside distribution) thankfully rare
• Failure to coordinate, ease of finger-pointing
• California Idiosyncratic under-predicted and
  over-determined
• Northeast blackout the big one so far
• Distribution Does separation delay disaster
  recovery?
• Wholesale, retail price evidence mixed
• But all energy prices have been volatile
  Gasoline, natural gas

GBC Energy Symposium 12/9/09
3
Keeping lights on Its all about peaking
4
Big problem, but theyre working on it

• Capacity has to be in place to meet peak demand
• High price in extreme peak hours (lt1 of year)
  can be 50-100 times baseload price
• Shaving demand during just those few hours can
  enormously reduce investments needed
• Generation, transmission
• Real-time pricing (meters, orb, automated
  controls)
• BGE pilot High prices, or pay not to use, can
  reduce demand 22
• MEA draft report Plans to reduce peak demand by
  15 in place already

Brennan Opening Electricity Markets
4
GBC Energy Symposium 12/9/09
5
Do consumers really want choice?
6
Reliability vs. competition?

• Crucial, fragile, interconnected Electricitys
  unique combination
• My reliability affects your reliability
• The August 2003 blackout example
• A policy rationale for a smart grid, reserve
  requirements
• Valuing security What does a blackout cost?
• How much central control necessary?
• Operation, investment consistent with
  restructuring?
• The costs of renewable requirements
• Integrating variable sources into grid a problem
• Raising costs (beyond those of any CO2 controls)

GBC Energy Symposium 12/9/09
7
Which brings us to Maryland

• The two pillars of Maryland electricity policy
• (1) The price is too high
• (2) People buy too much
• Requires consumer irrationality
• Another paradox Conserve or produce?
• EmPower Maryland Reduced electricity use 15 by
  2015
• But re-regulate Why? To build more power
  plants!
• Why werent plants built? 15 demand reduction,
  maybe?
• Re-regulation
• Wont make costs disappear
• Limited in reach because Feds control wholesale
  (PJM)
• Restricting imports wont reduce costs
• Residential use regulated de facto, if not de jure

GBC Energy Symposium 12/9/09
8
Finally, watch the rhetoric

• Cheapest plant is the one we dont build
• Would we say this about
• schools?
• vaccines?
• museums?
• think tanks?
• Or anything else, without checking on how much
  benefit they create?
• Clichés can be useful, but they have to be
  approximately right

Brennan Opening Electricity Markets
8
GBC Energy Symposium 12/9/09
9
Read more about it?

• Generating the Benefits of Competition
  Challenges and Opportunities in Opening
  Electricity Markets, Toronto C. D. Howe
  Institute, Commentary 260 (April, 2008)
• Consumer Preference Not to Choose
  Methodological and Policy Implications, Energy
  Policy 35 (2007) 1616-27.
• Alleged Transmission Inadequacy Is
  Restructuring the Cure or the Cause? Electricity
  Journal 19, no. 4 (May 2006) 42-51.
• Making Electricity Markets Competitive How Fast
  and By Whom, in Portney, Paul and Richard
  Morgenstern (eds.), New Approaches on Energy and
  the Environment Policy Advice for the President
  (Washington Resources for the Future, 2004)
  38-43.
• Market Failures in Real-Time Metering, Journal
  of Regulatory Economics 26 (2004) 119-39.
• Electricity Capacity Requirements Who Pays?
  Electricity Journal 16, no. 8 (Oct. 2003) 11-22.
• Mismeasuring Electricity Market Power,
  Regulation 25 (Spring, 2003) 60-65.
• Alternating Currents Electricity Markets and
  Public Policy (with Karen Palmer and Salvador
  Martinez), Washington, DC Resources for the
  Future (2002).
• The California Electricity Experience, 2000-2001
  Education or Diversion? Washington, DC Resources
  for the Future (2001).

GBC Energy Symposium 12/9/09