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Building Electricity Markets While Rome Burns James D. Steffes Harvard Electricity Policy Group

Building Electricity Markets While Rome Burns James D. Steffes Harvard Electricity Policy Group San Diego, CA February 2, 2001. Why are we doing this?. We find considerable merit in consumer calls for direct access to electricity services. Pg 21 BB

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Building Electricity Markets While Rome Burns James D. Steffes Harvard Electricity Policy Group

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  1. Building Electricity Markets While Rome Burns James D. Steffes Harvard Electricity Policy Group San Diego, CA February 2, 2001

  2. Why are we doing this? • We find considerable merit in consumer calls for direct access to electricity services. Pg 21 BB • As in other product and service markets, choice will appropriately decentralize decision-making and give consumers direct influence over the development, delivery, consumption and price of energy services. Pg 13 BB • California’s electric strategy must shy away from proposals that simply maintain the current level of economic activity, and we must opt instead for a strategy which fosters economic growth. Pg 6 BB • We resist the tendency to drape outmoded regulatory approaches onto new and dynamic circumstances. Pg 9 BB

  3. But making markets work isn’t easy • Competition needs • Many buyers and many sellers • Easy entry and exit for producers and retailers • Investment and consumption decisions driven by price • Non-discriminatory access to network • Proper construction of Default Service role • Competition didn’t fail in California - California never gave competition a chance. • Failure to get restructuring right has tremendous (and often negative) impacts • Financial distress on utilities and customers • Political instability for regulators and politicians

  4. Bankruptcy is a very bad idea – too much financial uncertainty. Repeated calls for the “Good Old Days” of heavy-handed regulation simply delay the necessary fixes. Price controls in the wholesale electric market lead to real shortages. Government should not become the Portfolio Manager for large amounts of electricity purchases. Government is also not the right party to invest large sums of money into new generation. Trying to find the guilty and placing blame won’t help. What Won’t Work?

  5. What Will Work? • Implement Order 2000 in power markets with real access and well structured rules. • FERC needs to be the market monitor and enforcement agency, not the ISO. • Risk management is very complex in the power business and is not the same as making a bet. • Retail access is the key solution – consumers need to see price signals. • Any restructuring needs to deal with entry for new generation. • Look forward to solutions – there are no answers in placing blame.

  6. Other thoughts • Knowledge is Power – We must make sure policymakers and consumers have early warning about upcoming shocks. • Focus like a Laser Beam – We must stay focused on implementing the key components of competitive markets even when problems arise. • No other Workable Options - Over the longer term, cost-of-service regulation and regulatory micromanagement are even worse than competitive markets. • Supply and Demand Are Still Trump – Sooner or later “reasonable” prices come down to either more supply or less demand, and competition provides both more efficiently.

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