Retail electricity markets require marginal cost real-time pricing

Electricity Journal

Volumn 14, Issue 9, 2001, Pages 74-81

  Winters, Tobey ^a  

^a Nordstar Market Consultants   (United States)

Author keywords

[No Author keywords available]

Indexed keywords

COSTS; DEREGULATION; GAS PLANTS; INVESTMENTS; POWER MARKETS;

GOVERNMENT INCENTIVE; INVESTMENT DECISIONS; MARGINAL COSTS; MARKET COSTS; PRICE SIGNALS; REAL TIME PRICING; REGULATORY POLICIES; RETAIL ELECTRICITY MARKETS; TRANSMISSION-LINE;

ELECTRIC POWER TRANSMISSION;

EID: 0035511226     PISSN: 10406190     EISSN: None     Source Type: Journal    
DOI: 10.1016/S1040-6190(01)00245-7     Document Type: Article

References (18)

1. Since 1997, power producers have filed for 16,765 MW of new projects in California. If all projects were approved, this would increase in-state resources by 30 percent, and excludes "emergency generators" not subject to the California Energy Commission's standard siting process.
2. Jerry Hirsch, Sudden power glut puts State in costly bind, Los Angeles Times, Aug. 13, 2001. "Even while the state was selling surplus power, customers in the areas served by its three large utilities used 3.5 percent less electricity last month than a year ago, after adjusting for weather, according to the California Energy Commission. Peak demand-when consumers are using the most electricity-was off 9.1 percent after adjusting for a cooler July than a year ago."
3. Eric Hirst, Price-responsive demand in wholesale markets: Why is so little happening?, Elec. J., May 2001, at 25-37.
4. This is the apparent conclusion reached by General Motors. See Stationary draw, The Economist, Aug. 11-17, 2001, at 51.
5. Alfred E. Kahn, The Economics of Regulation: Principles and Institutions (Cambridge, MA: MIT Press, 1988), at xxxv-xxxviii. For his discussionof marginal cost pricing, see 63-122.
6. Alfred E. Kahn, The Economics of Regulation: Principles and Institutions (Cambridge, MA: MIT Press,1988), at xxxv-xxxviii. For his discussion of marginal cost pricing, see 63-122.
7. By constricting customers from using more or less of specific services, regulation tends to promote an "all or nothing" position relative to customers. The only way for customers to negotiate with utilities is to expand facilities in other states, where the price of service can be negotiated. A number of industry managers whom the writer contacted in California were not considering on-site generation, partly because it is easier to move production to an out-of-state facility.
8. Supra note 3.
9. Fereidoon Sioshansi And Ali Vojdani, What could possibly be better than real-time pricing? Demand response, Elec. J., June 2001, at 39-50.
10. David Nichols And John Stutz, Load response: New or déjà vu?, Elec. J., May 2001, at 73-79.
11. The "environmental justice" movement contends that the poor are subjected to a greater degree of environmental pollution from the older plants in their neighborhoods and also must contend disproportionately with the siting of new plants near their neighborhoods. Locational pricing would provide the economic incentive to improve emissions at existing units to best available control technology (BACT) levels, while extending options for serving urban load centers.
12. Existing units are subject to BACT when they propose a major upgrade. The review of the process of making these determinations (called New Source Review) was initiated by the Environmental Protection Agency, but postponed on Aug. 14, 2001. The new source review process creates uncertainty about what plant owners can do to upgrade operations at their plants for fear of triggering enormous unforeseen costs.
13. Nathanael Greene And Roel Hammerschlag, Small and clean is beautiful; exploring the emissions of distributed generation and pollution prevention policies, Elec. J., June 2000, at 50-60.
14. Emergency generators are designed for use for site or local distribution out-ages and not an area-wide generation shortage. It is the failure of electric deregulation pricing, not environmental regulations, that has created the issue about diesel generators' emissions.
15. Any congestion is a peak capacity issue. Except for the fact that the cable requires electricity to operate the computer or TV, this would be a case where the children are right and the parents are wrong on the issue of "turning it off."
16. The NEPD's 17 pages of recommendations focus on removing regulatory constraints to the building of new facilities, subsidies and incentives to particular programs, and ways the government can encourage construction of energy facilities. There is no analysis of market-based solutions in the context of a federal system of government.
17. Supra note 3.
18. Supra note 9.