# Regulation and Policy

## Regulation and Policy

### Regulation, Governance and Judicial Review

Brown, Ashley. “The Duty of Regulators to Have Ex Parte Communications.” The Electricity Journal 29, no. 9 (2016): 27-30. Publisher's VersionAbstract
By confining regulators to judicial constraints when they are acting in a legislative capacity, the Herculean task of directing the path of electricity restructuring is being undertaken under rules that require decision-makers to be utterly passive and only minimally inquisitive. Regulators should be free, when acting in their quasi-legislative capacities, to act like legislators and not like judges.
Linares, Pedro, Francisco Javier Santos, Mariano Ventosa, and Luis Lapiedra. “Incorporating oligopoly, CO2 emissions trading and green certificates into a power generation expansion model.” Automatica 44, no. 6 (2008): 1608-1620. Publisher's VersionAbstract
This paper presents a generation expansion model for the power sector which incorporates several features that make it very interesting for application to current electricity markets: it considers the possible oligopolistic behavior of firms, and incorporates relevant policy instruments, carbon emissions trading and tradable green certificates. It combines powerful traditional tools related to the detailed system operation with techniques for modeling the economic market equilibrium and a formulation for the resolution of the emissions permit and tradable green certificates market equilibrium. The model is formulated as a Linear Complementarity Problem (LCP) which allows the optimization problem for each firm considering the power, carbon and green certificate markets to be solved simultaneously. The model has been implemented in GAMS. An application to the Spanish power system is also presented.
Hogan, William W.Regulation and Electricity Markets.” In, 2008.Abstract
Hogan, William. Regulation and Electricity Markets. Presentation to the Harvard Electricity Policy Group 53rd Plenary Session, December 11, 2008. 9 pages.
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### EPAct

Benefits and Costs of the Clean Air Act 1990-2020. Report Documents and Graphics. EPA. Environmental Protection Agency, 2011. Publisher's VersionAbstract

In March 2011, EPA issued the Second Prospective Report which looked at the results of the Clean Air Act from 1990 to 2020. According to this study, the central benefits estimate exceeds costs by a factor of more than 30 to one. The report was updated in April 2011.

The report includes an Executive Summary which describes the study and its findings in more detail and nine technical appendices which provide in-depth documentation for each of the analytical components.

Force, The Electric Energy Market Competition Task. “Report to Congress on Competition in Wholesale and Retail Markets For Electricity Markets.” In, 2007.Abstract

Excerpt from the Executive Summary:

A. Congressional Request The Energy Policy Act of 2005 (EPAct 2005)1 was designed to provide a comprehensive longrange energy plan for the United States. Section 1815 of the Act2 created an “Electric Energy Market Competition Task Force”3 (Task Force) to conduct a study of competition in wholesale and retail markets for electricity in the United States. Section 1815(b)(2)(B) required the Task Force to publish a draft final report for public comment at least 60 days prior to submitting the final report to Congress. The Task Force published the draft final report in June 2006 and sought comment on the preliminary observations contained in the draft. Based on those comments, and other input received earlier, the Task Force hereby submits this final report to Congress.

Sotkiewicz, Paul, and Lynne Holt. “Public Utility Commission Regulation and Cost-Effectiveness of Title IV: Lessons for CAIR.” In, 2005.Abstract

Summary:

There is growing evidence that the cost savings potential of the Title IV SO2 cap-and-trade program is not being reached. PUC regulatory treatment of compliance options appears to provide one explanation for this finding. That suggests that PUCs and utility companies should work together to develop incentive plans that will encourage cost-minimizing behavior for compliance with the EPA’s recently issued Clean Air Interstate Rule.

Brown, Ashley. “Changes in the Electricity Industry Since the Passage of the Energy Policy Act of 1992.” In, 1994.Abstract

EXECUTIVE SUMMARY

The passage of the Energy Policy Act in 1992 ushered in a new competitive era in the U.S. electricity industry. The task ahead for both state and federal regulators is to make the regulatory changes that are a necessary part of these changes in the industry in a coherent fashion.

• There is no way to achieve coherence in transmission policy without formal cooperation between federal and state regulators. Congress should urge these regulatory bodies to begin this process, in order to address issues of transmission pricing, unbundling of services, siting, access, and planning.
• Who should bear the risks of a transition to a more competitive industry? This is clearly a question of policy, and should be treated as such. As a matter of policy, the jurisdiction which is responsible for creating stranded assets should be the one which deals with its consequences. I applaud the California and Michigan commissions for dealing with this issue explicitly as part of their proposals. The FERC has done the same in its recent NOPR, but has left unclear the issue of possible preemption of state jurisdiction.
• Registered holding companies are currently shielded from competition by the ability to pick the regulatory forum to which they turn for decisions, and by judicial determinations which insulate self-dealing from market forces. The proposed "fix" to the Ohio Power case, now before the Congress, is a step in the right direction. However, there are still gaps and overlaps between federal and state jurisdictions that need to be addressed. In order to supervise transactions involving registered holding companies, the FERC and state PUCs need to work together. If the Congress is unwilling to codify the Pike County doctrine, it should urge the FERC to adopt it explicitly as a formal doctrine of regulatory federalism, andmake rulings that are consistent with multiple layers of jurisdiction.

The Congress must encourage the FERC and the state commissions to exercise statesmanship on these issues, rather than continuing to engage in bureaucratic turf battles.

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### FERC Rulings and Reports

Gavan, John C., and Rob Gramlich. John C. Gavan and Rob Gramlich - A New State-Federal Cooperation Agenda for Regional and Interregional Transmission, 2021. Publisher's VersionAbstract

Excerpt from the Introduction:

The experience of grid operators and planners in the United States and around the world has shown that both decarbonization and power system resilience will require large-scale regional and inter-regional trans- mission expansion. In the United States, transmission planning, cost recovery, and siting are all subject to both state and federal jurisdiction. To meet the challenge of expanding transmission to implement decarbonization, the Federal Energy Regulation Commission (FERC) and the National Association of Regulatory Utility Commissioners (NARUC) recently announced the Joint Federal-State Task Force on Electric Transmission to focus on this issue.1 Resolving issues of siting and cost recovery for interstate electric transmission lines will encourage constructive state-federal cooperation. The task force and related regional and national coordination among the states, FERC, the Department of Energy (DOE), and federally regulated transmission providers will be critical to ensuring a resilient and clean power system.

Hogan, William W.CarbonPricing inOrganizedWholesale Electricity Markets .” In, 2020. Publisher's VersionAbstract

Excerpt from the Introduction:

Thank you for the opportunity to participate in this technical conference. My comments here and during the conference are my own and do not represent the opinions of anyone else. The focus of my remarks will be on carbon pricing and the interactions with short-term electricity markets as found in the organized wholesale markets in the United States. I do not address the design and implementation questions focused on investments and resource adequacy that underpin capacity markets.

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### Market "Manipulation"

Hogan, William W.Cross-product Manipulation in Electricity Markets, Microstructure Models and Asymmetric Information.” In, 2019. Publisher's VersionAbstract

Electricity market manipulation enforcement actions have moved from conventional analysis of generator market power in real-time physical markets to material allegations of sustained crossproduct price manipulation in forward financial markets. A major challenge is to develop and apply forward market analytical frameworks and models. This task is more difficult than for the real-time market. An adaptation of cross-product manipulation models from cash-settled financial markets provides an existence demonstration under uncertainty and asymmetric information. The implications of this analysis include strong empirical predictions about necessary randomized strategies that are not likely to be observed or sustainable in electricity markets. Absent these randomized strategies and other market imperfections, the means for achieving sustained forward market price manipulation remains unexplained.

Keywords: market manipulation; electricity markets; limits to arbitrage; asymmetric information

McBride Johnson, Philip. “Financial Reform: A Rough View.” In, 2010.Abstract
McBride Johnson, Philip. Financial Reform: A Rough View. Distributed to the Harvard Electricity Policy Group, Fifty-Ninth Plenary Session. Cambridge, MA. May 20, 2010. 6 pages.
McBride Johnson, Philip. “Turf Wars - an Essay.” In, 2010.Abstract
McBride Johnson, Philip. Turf Wars" - an Essay. Distributed to the Harvard Electricity Policy Group, Fifty-Ninth Plenary Session. Cambridge, MA. May 20, 2010. 4 pages."

### Mergers, Market Power and Anti-Trust

Linares, Pedro, Francisco Javier Santos, Mariano Ventosa, and Luis Lapiedra. “Incorporating oligopoly, CO2 emissions trading and green certificates into a power generation expansion model.” Automatica 44, no. 6 (2008): 1608-1620. Publisher's VersionAbstract
This paper presents a generation expansion model for the power sector which incorporates several features that make it very interesting for application to current electricity markets: it considers the possible oligopolistic behavior of firms, and incorporates relevant policy instruments, carbon emissions trading and tradable green certificates. It combines powerful traditional tools related to the detailed system operation with techniques for modeling the economic market equilibrium and a formulation for the resolution of the emissions permit and tradable green certificates market equilibrium. The model is formulated as a Linear Complementarity Problem (LCP) which allows the optimization problem for each firm considering the power, carbon and green certificate markets to be solved simultaneously. The model has been implemented in GAMS. An application to the Spanish power system is also presented.
Joskow, Paul. “Regulating Markets.” In, 2006.Abstract
Joskow, Paul. Regulating Markets. 22 September 2006. Presentation, 22 pages.

### National Energy Policy

Borenstein, Severin, James Bushnell, Frank Wolak, and Matthew Zaragoza-Watkins. “Expecting the Unexpected: Emissions Uncertainty and Environmental Market Design." .” In Energy Institute at Haas. Berkeley University. 2016.Abstract

We study potential equilibria in California’s 2013-2020 cap-and- trade market for greenhouse gasses (GHGs) based on information available before the market started. We find large ex ante uncer- tainty in business-as-usual emissions, and in the abatement that might result from non-market policies, compared to the market- based variation that could plausibly result from changes in al- lowance prices within a politically acceptable range. This implies that the market price is very likely to be determined by an admin- istrative price floor or ceiling. Comparable analysis seems likely to reach similar conclusions in most cap-and-trade markets for GHGs, consistent with outcomes to date in such markets.

Staff White Paper on Guidance Principles for Clean Power Plan Modeling." Federal Energy Regulatory Commission, AD16-14-000, 2016."” In, 2016.Abstract

Executive summary

On August 3, 2015, the U.S. Environmental Protection Agency (EPA) issued the Clean Power Plan (CPP) under Clean Air Act 111(d). The CPP limits carbon dioxide emissions from existing fossil fuel-fired electric power plants by providing state specific goals for carbon dioxide emissions from affected electric generating units. As part of the CPP, EPA considered the potential impacts of the CPP on electric system reliability. Specifically, the CPP requires each state to demonstrate in its final state plan submittal that it has considered reliability issues in developing its plan. Separately, on August 3, 2015, EPA, the U.S. Department of Energy (DOE) and the Commission agreed to coordinate certain activities to help ensure continued reliable electricity generation and transmission during the implementation of the CPP.

While the CPP assigns no direct role to the Commission, it is possible that the Commission may be called upon, through the EPA-DOE-FERC Coordination Document or for other reasons, to address concerns about reliability as the CPP is implemented. In that case, the use of appropriate modeling tools and techniques will be helpful to the Commission in carrying out its responsibilities for reliability.

This white paper identifies four guiding principles that may assist transmission planning entities, which may include regional transmission organizations (RTOs), independent system operators (ISOs), electric utilities, or other interested stakeholders, in conducting effective analysis of the CPP and associated state plans, federal plans or multi-state plans (compliance plans). The North American Electric Reliability Corporation (NERC) and the regional electric reliability organizations may also benefit from following these guiding principles as they perform CPP-related analyses. These guiding principles address four areas: (1) transparency and stakeholder engagement; (2) study methodology and interactions between studies; (3) study inputs, sensitivities and probabilistic analysis; and (4) tools and techniques.

Incorporating these guiding principles in the modeling of the CPP compliance plans is one way to promote a robust analysis of the reliability impacts of the CPP. The guiding principles discussed herein may form the basis for additional action by staff, such as industry outreach or technical conferences, or future action by the Commission.

and National Academies of Sciences, Engineering, Medicine. “The Power of Change: Innovation for Development and Deployment of Increasingly Clean Electric Power Technologies.” In, 2016.Abstract
Electricity, supplied reliably and affordably, is foundational to the U.S. economy and is utterly indispensable to modern society. The National Academy of Engineering has called electrification the greatest engineering achievement of the 20th century (Constable and Somerville, 2003). Generating electricity also creates pollution, however, especially emissions of air pollutants. While the most severe and life-threatening pollution from electric power plants is largely a thing of the past in America, power plant emissions of particulates as well as oxides of nitrogen and sulfur (NOx and SOx) 1 still cause harms and contribute to increases in morbidity and mortality (Bell et al., 2008; Laden et al., 2006; Pope et al., 2009). Those harms include premature deaths, contributions to illnesses such as asthma, and increased hospitalizations, and electricity prices do not fully incorporate the costs of those harms (NRC, 2010b). Harms from greenhouse gas (GHG) emissions—to which the power sector is an important contributor, accounting for nearly 40 percent of all domestic emissions (EPA, 2016)— remain almost completely unpriced and thus above the level they would be if market prices reflected their full costs.
Cullen, Joseph, and Erin Mansur. “Inferring Carbon Abatement Costs in Electricity Markets: A Revealed Preference Approach using the Shale Revolution.” In, 2016.Abstract
This paper examines how carbon pricing would reduce emissions in the electricity sector. We show how both carbon prices and cheap natural gas reduce, in a nearly identical manner, the historic cost advantage of coal-fired power plants. The shale revolution has resulted in unprecedented variation in natural gas prices that we use to estimate the potential effect of a carbon price. Our estimates imply that a price of $20 ($70) per ton of carbon dioxide would reduce emissions by 5% (10%). Furthermore, carbon prices are much more effective at reducing emissions when natural gas prices are low. In contrast, modest carbon prices have negligible effects when gas prices are at levels seen prior to the shale revolution.
Hogan, William W.Electricity Markets and the Clean Power Plan.” In, 2015. Publisher's VersionAbstract
The Environmental Protection Agency issued a final rule that defines a broad and complicated set of standards for controlling carbon dioxide (CO2) emissions from affected electricity generating units. (Environmental Protection Agency, 2015b) The proposed national average reduction by 2030 is 32% from the 2005 level of emissions, about half of which has already occurred. (Environmental Protection Agency, 2015j) The rules for new power plants are relatively straightforward and imply little more than reinforcing the current economic choice of natural gas over coal fired generation, given current projections for the price of natural gas. The Clean Power Plan rules for existing power plants arise under a different section of the Clean Air Act and present a more complicated picture. The result has implications for the nature and degree of future limitations on carbon dioxide emissions from the electricity sector. In addition, some versions of the possible implementation plans could have material implications for the operations of Regional Transmission Organizations under the regulations of the Federal Energy Regulatory Commission. The purpose here is to highlight some of the possible directions for relevant policies of electricity system operators.
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### Public Power

Rosenberg, William, Dwight Alpern, and Michael Walker. “Financing IGCC - 3 Party Covenant.” In, 2004. Publisher's VersionAbstract
This paper describes a 3 Party Covenant financing and regulatory program aimed at reducing financing costs and providing a risk-tolerant investment structure to stimulate initial deployment of five to ten Integrated Gasification Combined Cycle (IGCC) coal generation power plants during this decade. The 3 Party Covenant is an arrangement between the federal government, state Public Utility Commission (PUC), and equity investor that serves to lower IGCC cost of capital by reducing the cost of debt, raising the debt/equity ratio, and minimizing construction financing costs. The 3 Party Covenant would reduce the cost of capital component of energy costs from new IGCC facilities by 34 percent and the overall cost of energy about 20 percent, making the technology cost competitive with pulverized coal (PC) and natural gas combined cycle (NGCC) generation.
Rosenberg, William. Financing IGCC - 3 Party Covenant, 2004. Publisher's VersionAbstract
This paper describes a 3 Party Covenant financing and regulatory program aimed at reducing financing costs and providing a risk-tolerant investment structure to stimulate initial deployment of five to ten Integrated Gasification Combined Cycle (IGCC) coal generation power plants during this decade. The 3 Party Covenant is an arrangement between the federal government, state Public Utility Commission (PUC), and equity investor that serves to lower IGCC cost of capital by reducing the cost of debt, raising the debt/equity ratio, and minimizing construction financing costs. The 3 Party Covenant would reduce the cost of capital component of energy costs from new IGCC facilities by 34 percent and the overall cost of energy about 20 percent, making the technology cost competitive with pulverized coal (PC) and natural gas combined cycle (NGCC) generation.
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### Regulation, Governance and Judicial Review

Brown, Ashley. “The Duty of Regulators to Have Ex Parte Communications.” The Electricity Journal 29, no. 9 (2016): 27-30. Publisher's VersionAbstract
By confining regulators to judicial constraints when they are acting in a legislative capacity, the Herculean task of directing the path of electricity restructuring is being undertaken under rules that require decision-makers to be utterly passive and only minimally inquisitive. Regulators should be free, when acting in their quasi-legislative capacities, to act like legislators and not like judges.
Linares, Pedro, Francisco Javier Santos, Mariano Ventosa, and Luis Lapiedra. “Incorporating oligopoly, CO2 emissions trading and green certificates into a power generation expansion model.” Automatica 44, no. 6 (2008): 1608-1620. Publisher's VersionAbstract
This paper presents a generation expansion model for the power sector which incorporates several features that make it very interesting for application to current electricity markets: it considers the possible oligopolistic behavior of firms, and incorporates relevant policy instruments, carbon emissions trading and tradable green certificates. It combines powerful traditional tools related to the detailed system operation with techniques for modeling the economic market equilibrium and a formulation for the resolution of the emissions permit and tradable green certificates market equilibrium. The model is formulated as a Linear Complementarity Problem (LCP) which allows the optimization problem for each firm considering the power, carbon and green certificate markets to be solved simultaneously. The model has been implemented in GAMS. An application to the Spanish power system is also presented.
Hogan, William W.Regulation and Electricity Markets.” In, 2008.Abstract
Hogan, William. Regulation and Electricity Markets. Presentation to the Harvard Electricity Policy Group 53rd Plenary Session, December 11, 2008. 9 pages.
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