Publications by Year: 2007

FERC State of the Markets Report 2007. 15 pages.

Jaeger, Doug. Beneficiaries of Transmission Expansion: Who, Where, When and How Much? 31 May 2007. Presentation, 17 pages.

Adams, Kurt. Beneficiaries Pay: Why and How Much? 31 May 2007. Presentation, 14 pages.

Moeller, Clair. Electrical Transmission Tariffs: Who Benefits, Who Pays, and Who Decides? 31 May 2007. Presentation, 8 pages.

The United States electric system has served the nation well with decades of reliable and universal electricity service. However, there is an increasing and broad recognition that significant amounts of investment in the transmission system will be needed in the near and long term if the system is to continue to provide the kind of electricity service that Americans desire and on which the nation’s economy depends.

Attracting new investment in transmission in recent years has become more complicated than in the past because of the nation’s transition from a traditional era of utility regulation to a new era of national policy supporting “open access” to transmission. While the wholesale electricity market has changed fundamentally, the framework for enabling and encouraging investment that will better enable the grid to serve growing competitive markets has not yet fully emerged. One area still largely unresolved is how the costs incurred in transmission expansion will be allocated among users. While it is clear that many traditional cost-allocation approaches are no longer appropriate, new principles governing the allocation of cost responsibility for new transmission investment have yet to be fully articulated and implemented. It is the articulation of principles for that cost allocation that is the subject of this paper.

This White Paper focuses on the principles for determining the benefits of new transmission investments, and for allocating the costs efficiently and equitably among those who benefit from the enhancement. While for the most part Federal regulators have been attempting in recent years to accommodate the differences of opinion on these topics by adopting transmission cost-allocation proposals resulting from settlement discussions or negotiated agreements among stakeholders in specific geographic areas, this approach suffers from the lack of common, predictable principles supporting transmission investment for the interconnected grid that serves broad regions of the nation. While the acceptance of different regional approaches is understandable from a pragmatic point of view because such settlement processes often allow issues to be resolved with less contentiousness, that approach is inadequate to the task of creating a sustainable and viable environment for continuing attraction of capital into transmission projects. Indeed, it is unlikely that the widely divergent methods proposed and accepted for allocating transmission costs can produce a body of policies that together both meet the legal standard of just and reasonable results and also prove to be the foundation for sustainable investment for the long term, particularly when these allocations interact across 2 regional boundaries. Finding a principled basis for cost allocation that relies on more than lowest common denominators would certainly provide a more appropriate and sustainable basis for public policy.

Ott, Andrew. Transmission Expansion Analysis. 31 May 2007. Presentation, 12 pages.

Hartridge, Olivia. Carbon Markets: Why and How? Presentation to the HEPG Fifty-First Plenary Session, 1 June 2007.  19 pages.

Woodfin, Dan. Competitive Renewable Energy Zones: Texas' Solution to the Poultry Dilemma? 16 March 2007. Presentation, 15 pages.

Tierney, Susan. Decoding Developments in Today's Electric Industry - Ten Points in the Prism. October 2007. 38 pages.

This paper studies several stochastic programming formulations of dynamic oligopolistic games under uncertainty. We argue that one of the models, namely games with probabilistic scenarios (GPS), provides an appropriate formulation. For such games, we show that symmetric players earn greater expected profits as demand volatility increases. This result suggests that even in an increasingly volatile market, players may have an incentive to participate in the market. The key to our approach is the so-called scenario formulation of stochastic programming. In addition to several modeling insights, we also discuss the application of GPS to the electricity market in Ontario, Canada. The examples presented in this paper illustrate that this approach can address dynamic games that are clearly out of reach for dynamic programming, a common approach in the literature on dynamic games.

Zachmann, Georg and Christian von Hirschhausen. First Evidence of Asymmetric Cost Pass-through of EU Emissions Allowances: Examining Wholesale Electricity Prices in Germany. March 2007. Paper, 8 pages.

 

 

This paper applies the literature on asymmetric price transmission to the emerging commodity market for EU emissions allowances (EUA). We utilize an error correction model and an autoregressive distributed lag model to measure the relationship between CO2 price changes and the development of wholesale electricity prices. Using data from the German market for electricity and EUAs, we find that the rising prices of EUAs have a stronger impact on wholesale electricity prices than falling prices -- the first empirical evidence of asymmetric cost pass-through for these new allowances.

 

Stavins, Robert. Global Climate Change: What is to be Done? An Economic Perspective. 1 June 2007. Presentation, 15 pages. See also Beyond Kyoto: Getting Serious About Climate Change. The Milken Institute Review, First Quarter 2005. Article, 10 pages.

Murphy, Frederic and Yves Smeers. On the Impact of Forward Markets on Investment in Oligopolistic Markets with Reference to Electricity. Part I: Deterministic Demand. 15 June 2007, 38 pages.

 

 

This paper analyzes the properties of three capacity games in an oligopolistic market with Cournot players and deterministic demand. In the first game, capacity and the operation of that capacity is determined simultaneously. This is the classic open-loop Cournot game. In the second game, capacity is decided in the first stage and the operation of that capacity is determined in the second stage. The first-stage decision of each player is contingent on the solution of the second-stage game. This is a two-stage, closed-loop game. We show that when the solution exists, it is the same as the solution in the first game. However, it does not always exist. The third game has three stages with a futures position taken between the capacity stage and the operations stage and is also a closed-loop game. As with the second game, the equilibrium is the same as the open-loop game when it exists. However, the conditions for existence are more restrictive with forward markets added. When both games have an equilibrium, the solution values are identical. The results are very different from games with no capacity stage as studied by Allaz and Vila (1993), where they concluded that forward markets can ameliorate market power.

 

Murphy, Frederic and Yves Smeers. On the Impact of Forward Markets on Investments in Oligopolistic Markets with Reference to Electricity. Part II: Uncertain Demand. 18 June 2007, 39 pages.

 

 

There is a general agreement since Allaz-Vila’s seminal contribution that forward contracts mitigate market power on the spot market. This result is widely quoted and elaborated in studies of restructured power markets where it is generally believed that generators tend to exploit the special characteristics of this industry in order to extract higher prices. Allaz-Vila established their result under the assumption that the production capacities of the players are infinite. This assumption might have applied to the power industry in the early days of restructuring but it no longer holds in today environment of tightening capacity. We show that the Allaz-Vila result no longer holds when capacities are endogenous and constraining generation. Specifically the future market can enhance or mitigate market power when capacities are endogenous and demand is unknown at the time of investment. This result complements Part 1 where the authors show that forward markets do not mitigate market power when capacities are endogenous and demand is known at the time of investment. It also complements other work by Grimm and Zoettl who show that forward markets systematically enhance market power in some symmetric capacity-constrained markets.

 

In California there are 16 different climate zones, as defined in the California Energy Code (Title24). The code requires slightly different types of buildings in each zone. These different building code requirements make it important for people who are designing, building, or maintaining these buildings to understand the unique attributes of their climate and how it will influence the design and performance of their buildings. In this UCEI project we developed a simple, free, easy-to-use, graphic-based computer program called Climate Consultant 3, and we have posted it on the State of California’s Flex Your Power web site and on the UCLA Energy Design Tools web site. Our objective is to make it freely accessible to architects, builders, contractors, and homeowners, etc., to help them understand their local climate and how it impacts their building’s energy consumption.

Sotkiewicz, Paul and Lynne Holt. Public Utility Commission Regulation and Cost-Effectiveness of Title IV: Lessons for CAIR. March 2005. Article, 13 pages.

Mansour, Yakout. Transmission Chickens and Alternative Energy Eggs. 16 March 2007. Presentation, 5 pages.

Ellison, Chris. Transmission Chickens and Alternative Energy Eggs. 16 March 2007. Presentation, 17 pages.

Grueneich, Dian. Transmission Chickens and Alternative Energy Eggs: The CPUC Solution. 16 March 2007. Presentation, 7 pages.