A Generative Dialogue Without Illusions Part 8

Fundamentals of Deregulation [posted on 4.21.06 under Post hoc ergo propter hoc: The fallacy of blaming deregulation for rising electricity prices].

Slide #1 of 72

Retail Access is Easy, It’s Getting Wholesale Access that is Hard

William W. Hogan, Harvard University

Virginia Electricity Forum

Virginia State Corporation Commission

Charlottesville, Virginia

November 15, 1996

Slide #2 of 72

ELECTRICITY MARKET --------- Structures

Two elements stand at the core of a new market structure that can be fashioned consistent with this set of objectives.

• Pool-Based Market: Operation of the short-term market through a closely coordinated or pool-based dispatch. System security and network congestion problems handled as part of the dispatch. Transmission capacity rights allocated along with grid costs but implemented through short-term pool pricing and rental payments for use of allocated capacity. Long-run investment and contracts for energy handled in bilateral markets.

• Customer Choice: Under Efficient Direct Access customers remain with the local utility which buys from the wholesale market and resells at a time-of-use rate based on the spot price. There are no necessary changes in cost-of-service principles. All customers remain under the utility tariff but have effective access to the market. Decisions on cost recovery can proceed as before. Whatever can be done under traditional cost-of-service regulation can be continued. Universal service support, investments in energy efficiency, and subsidies for renewable and other environmentally preferred alternatives could be made when justified, and included in the cost of service applied to all customers separate from the time-of-use energy charges.

The pool-based, short-term electricity market addresses the few necessary constraints and technical issues by coordinating system operations and power plant dispatch. Customers, brokers and aggregators enjoy free choice to make long-term arrangements with any supplier or rely solely on access to the short-term market.

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