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Revisiting the Keystone State

Rate caps have squelched competition in Pennsylvania.

Fortnightly Magazine - July 2008

to all customers. These meters make time-of-use pricing plans possible, which is consistent with the goal of encouraging time-varying pricing stated in my 2001 article. In addition, there is support for establishing statewide targets for conservation and reduction of peak usage. Discussion of this topic is warranted, because greater conservation will be necessary in the future for both environmental and economic reasons. At the same time, there are costs associated with both of these proposals that must be weighed.

In summary, Pennsylvania and many other states have assured some development of renewable energy by mandating that these sources be included in electricity supply portfolios. The states would be wise to exercise restraint in adding to these mandates, especially given the likelihood of a change in federal policy toward climate change within the next few years.

Committing to Competition

Much has changed since my 2001 article on electricity competition. One thing has not changed, though—political sensitivity to increases in electricity prices. While Pennsylvania and other states cannot change the global conditions that are driving higher prices, they can minimize price increases by maintaining their commitment to competition and resisting the urge to impose additional mandates for renewable energy pending federal action to address climate change.

 

Endnotes:

1. U.S. Department of Energy, Energy Information Administration, “Average Retail Price of Electricity to Ultimate Customers by End-Use Sector, by State,” available at www.eia.doe.gov.

2. One lesson that regulators, including me in my former position, learned from the wholesale price spikes in 2005 was that utilities should stagger their purchases of energy for default service to minimize the risk of buying when the market is high due to transient events.

3. PJM Market Monitoring Unit, 2007 State of the Market Report, Vol. II, Sec. 3, page 124.

4. IHS Inc. and Cambridge Energy Research Associated, Power Capital Costs Index, press release dated Feb. 14, 2008.

5. Collin Cain and Jonathan Lesser, The Pennsylvania Electricity Restructuring Act: Economic Benefits and Regional Comparisons , Bates White, LLC (February 2007).

6. 2007 State of the Market Report, Vol. 1, page 13.

7. News Release, “PJM Reliability Pricing Model Draws Largest Amount of New Capacity So Far,” February 1, 2008; 2007 State of the Market Report, Vol. 1, pages 12-13, 17, 27. In the capacity auctions held to date, RPM has resulted in: additional demand-side resources and new generation, generating capacity brought out of retirement, and uprates at existing plants. In addition, more generators have offered capacity in each succeeding auction.

8. Act 213 of 2004, 63 Purdon’s Statutes Sec. 1648.1 et seq, entitled “The Alternative Energy Portfolio Standards Act.”

9. See, Electric Power Research Institute, The Power to Reduce CO 2 Emissions , 2007, available at www.epri.com.

10. For example, the Electric Reliability Council of Texas was forced to implement emergency procedures on Feb. 26, 2008 due to a series of events that began when wind-energy production dropped from 1,700 megawatts to 300 megawatts as evening electricity load was increasing. See, Press Release, ERCOT Demand Response Program Helps Restore Frequency Following Tuesday Evening Grid Event , Feb.