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Electric Power Industry Challenges: Competitive Electricity Markets Are Key

Electric Power Industry Challenges: Competitive Electricity Markets Are Key

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Electric Power Industry Challenges: Competitive Electricity Markets Are Key

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  1. Electric Power Industry Challenges: Competitive Electricity Markets Are Key William L. Massey Covington & Burling LLP On Behalf Of COMPETE Coalition RETECH 2009 Las Vegas, Nevada February 25, 2009

  2. COMPETE Coalition • 280 electricity stakeholders, employing over 7 million American workers • Electricity customers, suppliers, generators, renewable energy companies, demand response providers, transmission owners, trade associations, and economic development corporations • COMPETE supports well-structured competitive electricity markets for the benefit of consumers.

  3. Overview • Electric power industry is facing at least four major challenges. • Renewable resources and efficiency gains have a critical role to play in meeting these challenges. • Federal policy is focusing on bold targets for renewables and integrating renewables into electricity supply • Competitive wholesale and retail electricity markets are the best means of addressing the four challenges and integrating renewables.

  4. Four Challenges • Invest $1.5 trillion over the next 20 years to replace and modernize electricity production, transmission and distribution infrastructure. • Over $2 trillion if we include costs of limiting carbon emissions. • Significantly reduce greenhouse gas emissions from our Nation’s electricity generating fleet. • Maintain U.S. competitiveness in the global economy. • The costs of infrastructure investment and carbon control make innovation, efficiency and cost containment an imperative for the electricity sector. • Reduce dependence on foreign sources of energy and develop domestically produced low-carbon and renewable sources of energy.

  5. Federal Policy • Congress • Stimulus legislation: $ billions for clean energy • Renewable Energy Standard (RES) • Transmission siting • Efficiency standards • Greenhouse gas emissions (cap and trade)

  6. Federal Policy (cont’d) • Federal Energy Regulatory Commission (FERC) • Tariffs friendly to intermittent resources • Tehachapi order • Zephyr order – anchor shipper concept • March 3 conference on integration of renewables • Promote demand response

  7. FERC PolicyCompetitive Markets Overview • Regional Organized Wholesale Markets (ISOs, RTOs) • FERC jurisdiction • Single, transparent market clearing prices (energy and capacity) • Incentive to lower costs; lowest available cost resources are dispatched. • Large regional geographic scope • Largest number of competitors; lowest available costs • Independent administration and fair rules • Level playing field; creates confidence needed to attract investment and participants. • Independent market monitoring • Retail markets • State PUCs have jurisdiction • Customer choice of service providers (supply, demand response) • Investment and operation risk borne by providers, not customers • Incentive to lower costs

  8. Organized Wholesale Electricity Markets

  9. Challenge: Electricity Infrastructure • In regional competitive markets, transparent prices that vary by location signal when and where facilities are needed. • Market incentives attract the right type of investment for energy efficiency, transmission, generation or demand response at the lowest cost. • Recent PJM capacity auction prices comparable to 2001 • Competitive regional electricity markets have proven attractive to generation developers, particularly wind power. • Backlog of facilities seeking interconnection with the grid. • Competitive suppliers operate 40% of U.S. generation and built the vast majority of new capacity in last 10 years • During the last major electricity infrastructure build-out in the 1980s, traditional monopoly regulation performed poorly. • Excess capacity; excessive costs • Consumers bore much of the costs of unwise investment decisions. • In competitive markets, investors bear financial risks.

  10. Challenge: Greenhouse Gas Emissions Policy • Incentives for improved performance (created by good market rules) are more effective in achieving environmental policy objectives than regulating monopolists’ behavior through traditional command-and-control regulation. • Transparent price signals and fair rules enable environmentally friendly demand response, conservation and efficiency efforts by consumers. • Competitive regional electricity markets have a proven track record of improving operating efficiency, which allows us to do more with less.

  11. Challenge: Greenhouse Gas Emissions Policy (cont’d) • Rules and regional scope of competitive markets facilitate and are attractive to renewable resources. • Over 70% of U.S. installed wind capacity is in regions with organized competitive electricity markets, but these areas represent only 44% of wind potential. • Competitive wholesale electricity markets and investment by competitive electricity suppliers are responsible for over 85% of new wind capacity. • Competitive electricity markets allow demand response providers to compete on a level playing field with other resources. • Demand resources in the competitive markets have displaced the need for more than 23,000 MWs of generation. • Demand response and conservation are critical to achieving carbon reductions.

  12. Challenge: Global Competitiveness • Competitive electricity markets - where risk is borne by investors, not consumers - have improved operating efficiency and generator availability • Annual cost savings in PJM, NY and Midwest markets range from $800 million to $2 billion each • Large geographic scope of organized regional markets increases the generation choices for least-cost dispatch • Competitive electricity markets spur innovative products and services. • Customers empowered to manage energy use and lower their costs.

  13. Challenge: Global Competitiveness (cont’d) • Transparent price signals and demand response programs allow customers to shift usage times and aggregate their demand to lower costs • Demand resources in competitive markets displaced 23,000 MW of generation • Competitive markets will be good incubators for innovative smart grid investments

  14. Challenge: Energy Security • Improved operational efficiency means existing resources are used more wisely, thereby decreasing fossil fuel use. • Renewable energy, conservation, efficiency and demand response technologies are easier to implement in organized competitive electricity markets. • These intrinsically domestic low- or no-carbon resources reduce energy imports and create American jobs. • Electrification of the transportation sector substitutes clean domestically produced electricity for oil • Reduces dependence on foreign energy sources • Reduces greenhouse gas emissions. • Plug-in hybrid electric vehicles (facilitated by competitive electricity markets) • Offer state-of-the-art communication and control tools • Potential to serve as a resource to the grid.

  15. Competitive Markets - Not Deregulated • FERC and state PUCs have comprehensive regulatory authority over: • Generation and delivery services at wholesale and retail levels • Financial and reliability matters. • Strong oversight of electricity markets. • FERC screens out sellers that can exercise market power and monitors conditions in wholesale markets on a daily basis. • FERC can levy fines of up to $1 million/day per violation for market manipulation or violations of any FERC rules. • FERC standards for reliable operation and generation adequacy.

  16. Competitive Markets - Not Deregulated (cont’d) • FERC can order interconnections and power sales to maintain reliability. • Approvals needed for acquisitions and dispositions of public utility assets, security issuances, and liability assumptions. • Organized competitive wholesale markets provide additional safeguards. • Price caps • Creditworthiness requirements • Real-time monitoring by independent market monitors.

  17. Competitive Electricity Markets • Infrastructure: transparent market prices and incentives attract needed investment • Greenhouse gas emissions policy: markets drive efficiency and promote renewable and demand response resources • Competitiveness: market incentives and regional scope keep costs down, spur innovation, and foster efficiency • Energy security: improved efficiency, more renewable resources, advanced technologies and increased demand response reduce dependence on foreign energy sources • Rigorous regulatory oversight