Publications

    Alliance, The New England Energy. “A Review of Electricity Industry Restructuring in New England.” In, 2006.Abstract

    Excerpt from the Introduction:

     

    The New England states were among the first in the nation to restructure wholesale and retail electricity markets beginning in the late 1990s. In large part, the action was prompted by the burden of having the highest electricity costs in the country, which created hardships for residential consumers and handicapped many businesses from competing on a “level playing field” with companies located outside the region.2 Restructuring required most electric utilities to: sell their generating plants, allow consumers to choose among electricity suppliers and procure electricity for those consumers not choosing an electricity supplier – while remaining regulated and responsible for local distribution service. Wholesale restructuring involved creating a fair and reliable market for competition in generating electricity while ensuring equal access to transmission grids. Once established, the wholesale market caused electricity to become a commodity with prices set not by regulators, but by market rules and the balance between supply and demand.

    of Service, New York State Department Public. “Staff Report on the State of Competitive Energy Markets: Progress To Date and Future Opportunities.” In, 2006.Abstract

    The restructuring of the energy industry from regulated vertically-integrated monopolies to competitive markets has been described as "one of the largest single industrial reorganizations in the history of the world." With 9.4 million residential and 1.2 million business electric and natural gas accounts able to choose among a number of energy providers, New York State is recognized as a leader in this area. New York has adopted a flexible approach which has allowed policies to be guided and shaped by the successes and challenges experienced in this and other states, and by continuously evolving market conditions.

    This approach has required an ongoing appraisal of the status of New York's markets and the identification of further steps to be taken to promote the long-range vision adopted by the New York State Public Service Commission (NYPSC or the Commission). As a part of that ongoing effort, this report assesses the current state of New York's wholesale electric markets and retail electric and gas markets, describes progress that has been made over the past several years in creating such markets, and identifies opportunities for continued progress toward robust competition in New York State's energy industry.

    Shanefelter, Jennifer Kaiser. “Restructuring, Ownership and Efficiency: The Case of Labor in Electricity Generation.” In, 2006. Publisher's VersionAbstract
    This analysis considers improvements in productive efficiency that can result from a movement from a regulated framework to one that allows for market-based incentives for industry participants. Specifically, I look at the case of restructuring in the electricity generation industry. As numerous industries and economies have undergone this sort of transition to varying degrees, it is instructive to assess the performance of market-based incentives relative to what was observed under tighter regulation. Using data from the electricity industry, this analysis considers the total effect of restructuring on one input to the production process – labor – as reflected in employment levels, payroll per employee and aggregate establishment payroll. Using concurrent payroll and employment data from non-utility ("merchant") and utility generators in both restructured and nonrestructured states, I estimate the effect of market liberalization, comprising both new entry and state-level legislation, on employment and payroll in this industry. I find that merchant owners of divested generation assets employ significantly fewer people, but that the payroll per employee is not significantly different from what workers at utility-owned plants are paid. As a result, the new merchant owners of these plants have significantly lower aggregate payroll expenses. Decomposing the effect into a merchant effect and a divestiture effect, I find that merchant ownership is the primary driver of these results.
    Joskow, Paul, and Jean Tirole. “Retail Electricity Competition.” In, 2005. Publisher's VersionAbstract

    We analyze a number of unstudied aspects of retail electricity competition. We first explore the implications of load profiling of consumers whose traditional meters do not allow for measurement of their real time consumption, when consumers are homogeneous up to a scaling factor. In general, the combination of retail competition and load profiling does not yield the second best prices given the non price responsiveness of consumers. Specifically, the competitive equilibrium does not support the Ramsey two-part tariff. By contrast, when consumers have real time meters and are billed based on real time prices and consumption, retail competition yields the Ramsey prices even when consumers can only partially respond to variations in real time prices. More complex consumer heterogeneity does not lead to adverse se1ection and competitive screening behavior unless consumers have real time meters and are not rational. We then examine the incentives competitive retailers have to install one of two types of advanced metering equipment. Competing retailers overinvest in real time meters compared to the Ramsey optimum, but the investment incentives are constrained optimal given load-profiling and retail competition. Finally, we consider the effects of physical limitations on the ability of system operators to cut off individual customers. Competing retailers have no incentive to determine the aggregate value of non-interruption of consumers in the zones they serve, preferring instead to free ride on other retailers serving consumers in the same zones. 

     

    Joskow, Paul. “Patterns of Transmission Investment.” In, 2005. Publisher's VersionAbstract

    This paper examines a number of issues associated with alternative analytical approaches for evaluating investments in electricity transmission infrastructure and alternative institutional arrangements to govern network operation, maintenance and investment. The economic and physical attributes of different types of transmission investments are identified and discussed. Alternative organizational and regulatory structures and their attributes are presented. The relationships between transmission investments driven by opportunities to reduce congestion and loss costs and transmission investment driven by traditional engineering reliability criteria are discussed. Reliability rules play a much more important role in transmission investment decisions today than do economic investment criteria as depicted in standard economic models of transmission networks. These models fail to capture key aspects of transmission operating and investment behavior that are heavily influenced by uncertainty, contingency criteria and associated engineering reliability rules. I illustrate how the wholesale market and transmission investment frameworks have addressed these issues in England and Wales (E&W) since 1990 and in the PJM Regional Transmission Organization (RTO) in the U.S. since 2000. I argue that economic and reliability-based criteria for transmission investment are fundamentally interdependent. Ignoring these interdependencies will have adverse effects on the efficiency of investment in transmission infrastructure and undermine the success of electricity market liberalization.

    Markiewicz, Kira, Nancy Rose, and Catherine Wolfram. “Does Competition Reduce Costs? Assessing the Impact of Regulatory Restructuring on US Electric Generation Efficiency.” In, 2004. Publisher's VersionAbstract
    Although the allocative efficiency benefits of competition are a tenet of microeconomic theory, the relation between competition and technical efficiency is less well understood. Neoclassical models of profit-maximization subsume static cost-minimizing behavior regardless of market competitiveness, but agency models of managerial behavior suggest possible scope for competition to influence cost-reducing effort choices. This paper explores the empirical effects of competition on technical efficiency in the context of electricity industry restructuring. Restructuring programs adopted by many U.S. states made utilities residual claimants to cost savings and increased their exposure to competitive markets. We estimate the impact of these changes on annual generating plant-level input demand for non-fuel operating expenses, the number of employees and fuel use. We find that municipally-owned plants, whose owners were for the most part unaffected by restructuring, experienced the smallest efficiency gains over the past decade. Investor-owned utility plants in states that restructured their wholesale electricity markets had the largest reductions in nonfuel operating expenses and employment, while investor-owned plants in nonrestructuring states fell between these extremes. The analysis also highlights the substantive importance of treating the simultaneity of input and output decisions, which we do through an instrumental variables approach.
    Bessembinder, Hendrik, and Michael Lemmon. “Gains From Trade Under Uncertainty: The Case of Electric Power Markets.” In, 2004.Abstract

    The rapid growth in energy trading and movement towards deregulation of electricity markets have come to a halt in the wake of assertions that western U.S. energy markets were manipulated. This paper refocuses attention on the potential efficiency gains from competitive wholesale power trading, showing that for any given level of average demand, retail electricity prices will be lower if electricity is traded in competitive wholesale markets than if electricity is delivered by integrated producer-retailers. Wholesale power trading allows for the diversification of demand risk, and the greatest efficiency gains accrue when power demand is least correlated across markets and when there is substantial geographic variation in expected demand. Simulation evidence indicates that real time power trading could reduce retail prices by conservative estimates of 3 to 4% on average in the U.S., and that the combination of forward and real time trading could reduce prices by 6 to 10% or more. This analysis indicates that economic efficiency would be best served by policy aimed at ensuring that power markets are indeed competitive, and that sufficient transmission capacity exists for profitable power trades to be completed.

    Rose, Kenneth. 2003 Performance Review of Electric Power Markets. Virginia State Corporation Commission, 2003.Abstract

    Excerpt from the Executive Summary:

    Overall, the electric supply industry’s struggles continue for a third year. The string of events began with the price run-ups in California and the West in 2000 and 2001, continued with Enron’s disclosures and collapse in late 2001, was followed by disclosures of accounting improprieties and data misreporting, and has continued with the “credit crunch” the industry still faces. As if this was not enough to contend with, as this report was being finalized, the most widespread electrical blackout in North American history occurred. While the cause has not been determined at this time, it has already sparked a debate about possible causes and solutions and has renewed interest in federal energy legislation that was already under consideration by the U.S. Congress.

    Cooper, Mark. All Pain, No Gain: Restructuring and Deregulation in the Interstate Electricity Market. Consumer Federation of America, 2002.Abstract

    Excerpt from the Executive Summary:

     

    WHEN YOU ARE HEADED IN THE WRONG DIRECTION, GOING FASTER DOES NOT HELP

    Institutions Should Fit the Facts

    Electricity is a unique industry. It is a complex, real time network that requires cooperation and coordination to deliver a vital service. Demand for electricity is inelastic. Consumers faced with high electric prices cannot simply stop using electricity or switch to something else. Supply of electricity is also inelastic. Substantial new power plants take long lead times to construct. The transmission system cannot be expanded easily. Once produced, electricity cannot be stored very efficiently. As a result, it is deeply “affected with the public interest” and requires a balance of public and private responsibilities and incentives to keep it running smoothly. Restructuring and deregulation have undermined these values in the electricity industry. State policymakers recognized these problems and slowed down or reversed the irresponsible rush toward deregulation. Unfortunately, federal policymakers are charging ahead with deregulation policies such as the Electricity Title of the Energy Bill and the Standard Market Design proposal put forth by the Federal Energy Regulatory Commission.

    All Pain, No Gain

    States have been convinced to slow down or stop restructuring based on a mountain of evidence that restructuring and deregulation of the electricity industry offers enormous risks for consumers and virtually no rewards. Restructuring and deregulation has unleashed abuse of market power, excessive scarcity overcharges, inefficient transactions costs, and a sharp increase in the cost of capital. These cost increases swamp efficiency gains projected for deregulation.

    Bradford, Peter. “Testimony Before the United States Senate Committee on Environment and Public Works Subcommittee on Transportation, Infrastructure and Nuclear Safety - Renewal of the Price Anderson Act.” In, 2002.Abstract
    Bradford, Peter (Regulatory Assistance Project). Testimony Before the United States Senate Committee on Environment and Public Works Subcommittee on Transportation, Infrastructure and Nuclear Safety - Renewal of the Price Anderson Act. 23 January 2002. Testimony, analysis, 4 pages.

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