Knowledge Problem

Michael Giberson

As Lynne noted, we have written a comment on the Electric Energy Market Competition Task Force Draft Report to Congress. [ Report PDF. ] About 45 comments have been posted online at FERC, and naturally I am curious as to what other people said. [ Link to comments. ] I thought that I could easily scan through a bunch of these and pass along some commentary.

No. It turns out that reading the comments is too much fun, and nearly every one of the comments could inspire a three page rant. I don’t have time, and you don’t have the patience, for 45 x 3 pages of my rants (and a few raves) on the state of commentary on the state of electric competition.

Most eye catching to me – but remember I am an energy economics policy geek – was the “open letter to policymakers� signed by Vernon Smith, Alfred Kahn, Paul Joskow, William Hogan, and a few other big names in the world of electric energy economics. (The letter was submitted by COMPETE, the Electric Power Supply Association, and the Alliance for Retail Choice.) Here is what the big names had to say:

As economists that have both followed and participated in the discussion on restructuring the electricity industry to support competitive wholesale and retail electricity markets, we prepared this letter to provide our views about the value of continued support for the development of competitive markets for electricity.

Among economists, it is almost universally accepted that well functioning competitive electricity markets yield the greatest benefits to consumers in terms of price, investment and innovation especially when regulated alternatives are no longer warranted. And, despite currently high electricity prices in many regions, driven by very high fuel input costs used to generate electricity, we are confident that well structured markets and robust competition are providing substantial benefits to electricity consumers. More importantly, these benefits will increase over time if an effective restructuring process and competitive market implementation program continue to receive support from policymakers.

…

Competitive electricity markets are relatively new and will continue to evolve. We urge policymakers to focus on making necessary improvements in market design and resist the temptation to reject competition for a return to heavy-handed regulation. We are persuaded that competition in electricity markets will stand the test of time and continue to provide visible customer benefits.

Not everyone is persuaded. In the rest of the post I remark on filings by the Electricity Consumers Resource Council jointly with other industrial consumers, the American Public Power Association, the National Association of State Utility Consumer Advocates, and a few others.

Read the rest of this entry ?

Lynne Kiesling

On Friday the Mercatus Center filed a public interest comment, written by myself and Michael Giberson (the full comment in pdf form is at the link at the bottom of the page), on the Electric Energy Market Competition Task Force Draft Report to Congress.

The Draft Report to Congress on Competition in the Wholesale and Retail Markets for Electric Energy (Report) provides a high quality overview of the current state of wholesale and retail electric competition in the United States. The Report describes well both the current status of restructuring and the continuing uncertainty about the regulatory rules that will govern the industry in the future. The Report also usefully draws out the critical nature of the link between retail and wholesale markets, and explains how retail rate policies cause that link to malfunction.

While the Report accomplishes much of the task it was assigned, it misses two points, both closely connected to the malfunctioning retail-wholesale market link:

* The most significant shortcoming of the Report is a failure to recognize that advances in electronics and communication systems are dramatically reshaping the potential for demand response. As policymakers have repeatedly recognized, activating consumer demand will encourage conservation, reduce consumer bills, mitigate market power in wholesale and retail markets, and enhance power system reliability. The Report should emphasize that the technology is increasingly available to support active consumer participation in markets, and such participation would promote retail and wholesale competition.

* A second significant shortcoming of the Report concerns the too-brief discussion of capacity payment mechanisms. The Report overlooks the problematic justifications and troubled history of capacity payments in the electric power markets operated by Regional Transmission Organizations and Independent System Operators. The underlying market problems that produce the justification for capacity markets result directly from the lack of active consumer participation in markets. However, recent federal regulatory action appears oriented toward permanently enshrining capacity payment systems in RTO market designs. Given the growing potential for active consumer participation in markets, these capacity payment constructs are likely to become just another further regulatory impediment to the emergence of retail competition. The Report should highlight the potential of advances in technology to activate demand and complete the missing link between wholesale and retail markets as an alternative to continued exploration of capacity payment mechanisms.

Addressing these two deficiencies in the Report will help present a full picture of the state of retail and wholesale competition in power markets.

Michael Giberson

Reforming an African electricity company requires tough love, persistence — and a little luck. Just ask Jean-David Bile, a civil engineer in the central African country of Cameroon. Bile runs AES Corp.’s electricity operation in Cameroon, a national grid that is chiefly powered by two large dams and was formerly fully owned by the infamously corrupt government of Cameroon.

Bile is rooting out corruption at the electricity company, cracking down on customer theft, improving the flow of electricity — and ending the practice of hiring people to satisfy the demands of politicians and traditional chiefs. His achievements don’t always endear him to his fellow Cameroonians.

The story of AES’s involvement in Cameroon, told here by Pascal Zachary in EnergyBiz, sounds a lot like the story of the company’s efforts in Tblisi, Georgia.

I am a (very small time) stockholder in AES, so maybe I’m more interested in stories about the company that most. Still, I think the Paul Devlin documentary on AES in Georgia, Power Trip, is a great film for helping viewers to understand global capitalism. Of course “global capitalism” has a lot of stories, and AES’s extensive, expensive effort in Georgia is only one of them. It is, however, the best one I’ve seen told on film.

NOTE: I previously wrote about Power Trip, among other films, here: A liberal power trip: Real capitalism at the movies.