[BETA] Fortnightly

Even with convincing evidence that deregulation has failed to deliver promised benefits, efforts to restore public oversight face tough resistance. The reasons involve policy inertia—and blind faith in free markets.

In the past 60 years, the U.S. government has invested in every part of the energy industry, through direct subsidies, tax incentives, regulatory mandates, research projects, etc. Quantifying the dollar impact is a complex task, but it’s necessary for understanding the realities of U.S. federal energy policy.

Shale gas discoveries and ballooning inventories have pushed natural gas prices down to a 10-year low. At the same time, increasingly stringent emissions regulations are squeezing out some coal-fired power assets. Are we witnessing a power-fuel revolution? And if so, what’s the best survival strategy?

Recent years have seen fundamental changes in the supply and competitive landscape of the North American natural gas market. In response to high natural gas prices that prevailed during most of the last decade, gas producers in the lower 48 now have developed new sources of supply and technology, particularly to access new shale gas formations. These new supplies have encouraged a substantial expansion of the natural gas pipeline network in North America to allow the producers to reach end-use markets.

The advent of smart grid technology has raised new and challenging issues concerning data privacy. Of course, data privacy isn’t a new concern for the energy industry, as utilities have always collected customer data, some of which is common to any business, such as contact and credit information, and some of which is unique to the energy industry, such as usage and demand data.

As new EPA regulations drive companies to decommission older power plants, utilities face issues involving plant retirement and demolition. Some sites can host new power plants, but many can be better used for other commercial purposes. Thoughtful planning and decommissioning strategies can bring the greatest value from underutilized assets.

The electric utility industry offers up a wealth of ideas on how the Federal Energy Regulatory Commission might reform its policy, adopted under FERC Order 679 in 2006, of granting financial incentives for investments in transmission line projects that ensure reliability or mitigate line congestion so as to reduce the cost of delivered power. Fortnightly’s Bruce W. Radford reports.

Allocating the costs of new transmission investments requires accurately assessing the value of those new lines, and identifying the primary beneficiaries. But formulaic approaches rely too much on the most easily quantified cost savings, and reject benefits that are dispersed across service areas—or that might change over the course of time. Brattle Group analysts J.P. Pfeifenberger and D. Hou explain that comprehensive valuation produces a more accurate picture.

IIt’s ironic that in today’s market, as the cost of hedging against commodity price increases has declined, support for utility hedging programs has sunk to a historic low. The ideal time to hedge is when prices are low and markets are relatively calm, because that’s when hedging costs and risks are the lowest. Conversely, waiting until prices rise and markets become volatile will expose customers to higher costs. Convincing regulators to approve hedging programs now will require a collaborative approach to educating and enlisting support from stakeholders.