Electricity consumption by Americansin 2002 3463 mwh with a delivered value of $249.6billion. 37% by Households 32% by commercial users 28% by industrial users
Electricity production by U.S in 2002 50.1% by coal 17.9% by natural gas 20.2% in nuclear units 6.6% as hydroelectricity 2.35% by wind & solar
Main Characteristics of Electricity Continuous operation by reserve power plants Centralized control to meet any changes in regionalconditions. Efficient duplication to facilitate emergency support,coordinated operations and power purchases and sales.
Role of Federal Energy RegulatoryCommission (FERC) FERC oversees ‘wholesale’ or ‘bulk’ transactions. It requires that wholesale prices be cost based. FERC accepts prices set by markets to meet standardsfor competition.
General Policy of FERC To expand the role of markets To decrease direct regulation subject to thelaw’s limits.
Electricity’s Ownership Structure in1998 66.1% of generating capacity was owned byCorporate utilities 10.7% by Governmental utilities 3.1% by cooperatives 11.9 by nonutility generators
Electricity Regulation from 1940sthrough 1960s Regulation function was well enough Retail competition was prohibited by states Industry grew more capital intensive Arrival of Nuclear generators that couldproduce cheap power
Electricity Regulation from 1970sthrough 1980s Oil prices rose higher Shortage of natural gas Technological progress slowed down Costs of existing plants raised Greater risk of unstable prices Regulatory uncertainty
Public Utility Regulatory Policy Act(PURPA) of 1978 Opened wholesale markets to non utilities Encouraged industrial generation from wasteheat ‘cogeneration’ Cogeneration led to larger nonutilityplants --- whose output was cheaper for utilitiesto purchase than to generate themselves
Electricity Regulation from 1980sthrough 1990s Regulators, consumers and utilities beganreconsidering markets New transmission and control technologiescame Inter utility exchanges grew faster than retailsales New gas-fired generators became as cheapas coal-fired plants
Energy Policy Act (EPAct) of 1992 Allowed transmission owners to carry powerfor other wholesale parties Nonutility generators could access any willingcounterparty Transmission access allowed municipalutilities to become independent
Electricity Regulation from 1990sonwards Utility purchases from non utilities grew morethan twice as fast as retail sales Retail customers still lacked choices Control technologies allowed reliable flowsover distances of one thousand miles Power marketers traded more than 1.5 billionin 1999
California Public Utilities Commission(CPUC) 1994 CPUC was the first to investigate choice for retailcustomers CPUC’s research staff blamed overregulation CPUC Proposed greater reliance on markets Competitive suppliers and many retail userswelcomed their proposal
Resistance against CPUCCalifornia’s three large corporate utilitiesresisted CPUC proposal claiming that: Competitive prices would not allow them torecover about $20 billion in PURPA contracts
Approval of Assembly Bill 1890 in 1996CPUC agreed to the utilities’ claim resulting in approval ofAssembly Bill 1890 by California’s legislature in 1996 This was an internally inconsistent compromise to ensure nondiscriminatory use of transmission Utilities had to divest in-state gas-fired generation Utilities had to purchase all powers from markets Risk management activities were prohibited It froze retail prices until 2002
Electricity Regulation from April 1998-2000 Supply and demand kept prices low to recoverstranded costs Natural gas supplies became limited and expensive Electricity became quite expensive Great Increase in the price of pollution permit
Electricity Regulation from April 1998-2000….continued Utilities faced insolvency as rising power costs metfrozen retail prices Short term energy prices were high FERC reluctantly capped short term prices and lostcreditworthiness California’s situation deteriorated badly in 2000
Electricity Regulation from 2001-2003 State government took over powerpurchasing Hydroelectric conditions improved Market prices fell to their pre-crisis levels Californian’s were locked into un-economicalcontracts whose costs must be allocated
Electricity Regulation from 2001-2003……continued State’s utilities tried to adopt previousmonopoly roles Fixed stranded cost payoffs were added toeveryone’s bills Customers were given access to marketsthat existed for years prior to reform
Electricity Regulation in 2004onwards 78% of the industrial power in New Jerseywas supplied by 30 non utility providers Utilities stopped supplying power to theindustrial users in New York New York state already had 33 non utilitysellers struggling for customers
ConclusionAccording to the case in discussion, USA isstill a long way from fully competitive marketsBUTEven the limited competition availableis producing considerable benefits