Electric Utility Restructuring Research Articles

The Effects of Vertical Separation and Competition: Evidence from US Electric Utility Restructuring

AbstractCompetition usually increases firm productivity; but in network industries, effective competition requires vertical separation, which might reduce productivity and lead to a potential trade-off. We analyze the combined effect of competition and vertical separation on inefficient costs for US electricity industry restructuring. We estimate firm-level inefficiencies with the use of different nonparametric models of the technology and calculate net benefits with the use of difference-in-differences. The results depend on how we model the production technology and the length of the post-treatment horizon. The more flexible is the production frontier, the greater is the net benefit from divestiture and competition. Across our models the combined effect of divestiture and competition is positive.

Consumer price effects of deregulated electric generation markets: The case of Ohio and the midwestern United States

This study investigates the effects of electric utility restructuring on (a) the cost of generated electricity, (b) increases in the regulated portions of customers' bills, and (c) changes in customers’ average total electricity price in restructured states relative to similar states that remained regulated. The results across the tests indicate that restructured generation markets benefited consumers through lower price growth or price declines. However, in Ohio, increases in charges authorized by regulators offset savings from competitive wholesale generation markets.

Downstream electric utility restructuring and upstream generation efficiency: Productivity dynamics of Indian coal and gas based electricity generators

This paper investigates the producer-level temporal dynamics of total factor productivity and operational performance changes in coal- and gas-based generators during the 2000–20013 period of major structural reforms in the downstream utilities in India. The total factor productivity is estimated using a recently developed improvement in the Stochastic Frontier panel method that controls for time-invariant unobserved heterogeneity, and the productivity change is decomposed into components of changes in technology frontier, efficiency, scale and allocation. A unique dataset of station-level data for coal and gas plants, that represents about two-thirds of all power generation in India during this period, is constructed for the analysis. The study shows that while there is improvement in the coal generator productivity at the mean rate of 0.20% per year that converges towards a point of higher efficiency for most plants, the gas generators show a trend of stagnant efficiency and declining total factor productivity at the mean rate of −0.80% per year. Unbundling and multi-dimensional utility reform indices are significantly associated with improvement in thermal efficiency and capacity utilization for coal generators. In contrast, utility reforms shows no significant positive influence on gas generators, instead a decline in capacity utilization is observed following unbundling.

The Effects of Vertical Separation and Competition: Evidence from US Electric Utility Restructuring

Competition increases firm productivity, but in network industries, effective competition requires the vertical separation of firms. Although not necessarily, separation can lead to a trade-off between technical efficiency gains from competition and losses from separation. We use the case of US electric industry restructuring to analyze the combined effect of competition and vertical separation, as well as the individual effects. We analyze the difference-in-difference in inefficient costs between divested units and non-divested units across restructuring or non-restructuring states. We estimate firm-level inefficiency using a non-parametric model of the technology. As the true production technology is unobserved and might differ across firms and time we repeat the analysis for different specifications of the technology. We find that in the worst case the positive competition effect is canceled by a negative separation effect. However, for most models of the technology, the overall effect is positive due to a positive separation effect. We also find that the effects depend on the length of the post-treatment period. Whereas the overall effect is negative right after restructuring it turns positive and grows over time.

Welcoming the Wind? Determinants of Wind Power Development Among U.S. States

Although currently supplying less than 1 percent of consumption, wind is the fastest growing source of electricity in the United States. This article analyzes the emerging geography of wind energy on a state-by-state basis. Rather than physical wind energy potential, the primary determinants of wind energy development among U.S. states are human geographic factors of population distribution, and resulting geography of electricity demand and transmission line accessibility, together with state-based energy policies, including electric utility restructuring, renewable portfolio standards, and procedures for siting and permitting wind farms. Although simplified state-level siting and permitting procedures that minimize opportunities for local opposition show a statistical advantage in wind energy development, examination of U.S. examples of local opposition to wind farms and the European experience in wind energy development show that community acceptability of wind farms depends on procedural legitimacy in siting decisions and a perceived aesthetic fit between wind farms and the local landscape.

Constitutional Limitations on the Ability of States to Rehabilitate Their Failed Electric Utility Restructuring Plans

This Article will review the constitutional limitations that come into play when a state seeks to rehabilitate its failed electric utility restructuring plan. Under the Constitution, utilities are entitled to earn a reasonable return on the assets devoted to public service. A situation in which retail rates are frozen may result in denial of a compensatory return if the electric utility is incurring higher costs to generate or procure its power supply. This is the traditional takings argument based on the Fifth Amendment to the Constitution, as applied to the states under the Fourteenth Amendment. Apart from this commonly asserted argument, however, a different constitutional issue arises in the context of proposed rate freezes. As a matter of procedural due process, a regulated utility cannot be deprived of its opportunity to demonstrate a need for rate relief to achieve the level of profitability that satisfies constitutional requirements. These procedural due process rights are imperiled when, for example, a state simply extends a rate freeze period and thereby denies the electric utility a hearing in which the utility would have an opportunity to make its case for higher rates.

06/02646 A response to two recent studies that purport to calculate electric utility restructuring benefits captured by consumersSpinner, H. M. The Electricity Journal, 2006, 19, (1), 42–47

This paper presents a method for the dimensioning of the low-energy District Heating (DH) piping networks operating with a control philosophy of supplying heat in low-temperature such as 55 °C in supply and 25 °C in return regularly while the supply temperature levels are being boosted in cold winter periods. The performance of the existing radiators that were formerly sized with over-dimensions was analyzed, its results being used as input data for the performance evaluation of the piping network of the low-energy DH system operating with the control philosophy in question. The optimization method was performed under different mass flow limitations that were formed with various temperature configurations. The results showed that reduction in the mass flow rate requirement of a district is possible by increasing the supply temperature in cold periods with significant reduction in heat loss from the DH network. Sensitivity analysis was carried out in order to evaluate the area of applicability of the proposed method. Hence varied values of the original capacity and the current capacity of the existing radiators were evaluated with the design temperature values that were defined by two former radiator sizing standards.

A Response to Two Recent Studies that Purport to Calculate Electric Utility Restructuring Benefits Captured by Consumers

Recent studies by Global Energy Decisions and Cambridge Energy Research Associates offered high “headline impact” in finding that find that wholesale electric competition is fulfilling its promises and restructuring is benefiting consumers to the tune of billions of dollars. But both studies share a fundamental problem tied to the fact that portions of those “savings” to consumers accrue from losses suffered by the competitive generation sector.

Has electric utility restructuring led to lower electricity prices for residential consumers in Texas?

This paper analyzes the determination of residential electricity prices in the competitive Electric Reliability Council of Texas (ERCOT) market. This analysis suggests that electricity restructuring in Texas has not yet resulted in lower prices for the majority of residential energy consumers in areas open to competition. Contrary to common expectations, residential electricity costs for consumers at a typical (1000 kWh per month) consumption level have increased at a greater rate in the areas of Texas offering retail choice than in the areas of the State where retail competition has not been introduced.

Measurement and evaluation of energy efficiency programs: California and South Korea

One of the key challenges for countries facing electric utility restructuring is to ensure that key public goods, such as energy efficiency programs, do not lose support but are maintained and enhanced via regulatory policy and government action. Moreover, an infrastructure and process also needs to be designed and implemented for conducting the measurement and evaluation of energy efficiency programs. This paper describes the experiences of California and the Republic of Korea (Korea) in addressing these issues. These case studies confirm that the active involvement of regulatory bodies is needed to ensure that energy efficiency investments continue. The case studies also show that the development of an infrastructure and process for conducting rigorous measurement and evaluation takes time and needs the active participation of many stakeholders.

Power to the People: Electric Utility Restructuring and the Commitment to Renewable Energy

With electric generation responsible for 41 percent of U.S anthropogenic carbon dioxide (CO2) emissions from energy use, development of clean energy sources is essential if the United States is to reduce release of greenhouse gases and slow global warming. Many proponents of sustainable energy anticipate that electric generation from renewable sources would thrive in a deregulated market, driven by consumer demand for “green” energy and the end of incentives to build large central power plants under the cost-plus profits guaranteed by state utility commissions. This paper examines the flaws in this expectation. After reviewing the highly cyclical nature of U.S. energy policy making in recent decades, the study links the ineffectiveness of policy with the institutional setting. Under electric utility market restructuring, renewable energy generation (wind, biomass, solar, geothermal, and small-scale hydro) must overcome barriers such as price distortions, lack of storage capability, discriminatory transmission system access, and the end of linked utility rate hikes guaranteed to cover the additional expense of renewable generation. In the absence of strong federal leadership, the state commitment to renewable energy has been uneven under utility restructuring. Moreover, nuclear power—the other leading alternative to fossil fuel use—is beset by serious problems. Only renewable energy options offer long-term hope for sustainability. Along these lines, green marketing, renewable portfolio standards, system benefit charges, carbon taxes, public power, “Community Choice,” and production credits—all based on recent U.S. and European experience—are critically examined and recommendations made for changing course. At present, during this highly fluid period of utility restructuring, and absent more forceful regulation and demand management, it is dubious whether U.S. electricity market reform can encourage sufficient conversion to renewable energy to stem a rising tide of greenhouse gas emissions.

Delivering Energy Efficiency Services to Wisconsin's Industries: Actions, Experiences, and Results from the Focus On Energy Program

ABSTRACT Under its electric utility restructuring, Wisconsin established a series of energy efficiency programs with major components devoted to serving Wisconsin's industries. This article presents experiences and lessons from working with Wisconsin industries and their suppliers in an action-oriented approach to implementing energy efficient projects and practices. In 1999, Wisconsin began a pilot program for the development, testing, and delivery of energy efficiency market transformation programs. In 2001, a statewide program was initiated to enhance and expand the scope, territory, and variety of programs offered and markets served. While the pilot work focused on testing energy efficiency services with industry, the statewide industrial programs, in contrast, have been action-oriented, focusing on getting energy efficient projects and practices in place with industry and its suppliers. These industrial programs experienced many diverging and interesting results from early successes to missed opportunities, to surprise interests. The lessons of these experiences have now been incorporated into many program services and offerings, including in-plant technical support, targeted financial incentives, specialized marketing, and advanced technology support to better service Wisconsin's industries. Over 400 industrial companies and municipal water/wastewater facilities have taken advantage of these energy efficiency services. These partners and allies have used the program to support such actions as project development, in-plant assessments, facility energy management planning, staff training, specialty process enhancements, and advanced technology assessment and demonstration, all to act upon energy efficiency opportunities to improve plant operation costs. The challenges and experiences in the Wisconsin industrial programs serve as a valuable guide to the design, development, and implementation of energy efficiency in industrial organizations, facilities, and processes. Case examples from planning through delivery of projects, from starting and continuing activities, are presented to illustrate how energy efficiency implementation can be advanced and achieved.

The missing manifesto: what economists should be saying about electric utility restructuring in the United States : Kelly, J. M. The Electricity Journal, 2003, 16, (1), 13–24

Representative Life-Cycle Inventories (LCIs) are essential for Life-Cycle Assessments (LCAs) quality and readiness. Because energy is such an important element of LCAs, appropriate LCIs on energy are crucial, and due to the prevalence of hydropower on Brazilian electricity mix, the frequently used LCIs are not representative of the Brazilian conditions. The present study developed a LCI of the Itaipu Hydropower Plant, the major hydropower plant in the world, responsible for producing 23.8% of Brazil's electricity consumption. Focused on the capital investments to construct and operate the dam, the LCI was designed to serve as a database for the LCAs of Brazilian hydroelectricity production. The life-cycle boundaries encompass the construction and operation of the dam, as well as the life-cycles of the most important material and energy consumptions (cement, steel, copper, diesel oil, lubricant oil), as well as construction site operation, emissions from reservoir flooding, material and workers transportation, and earthworks. As a result, besides the presented inventory, it was possible to determine the following processes, and respective environmental burdens as the most important life-cycle hotspots: reservoir filling (CO2 and CH4 emission; land use); steel life-cycle (water and energy consumption; CO, particulates, SOx and NOx emissions); cement life-cycle (water and energy consumption; CO2 and particulate emissions); and operation of civil construction machines (diesel consumption; NOx emissions). Compared with another hydropower studies, the LCI showed magnitude adequacy, with better results than small hydropower, which reveals a scale economy for material and energy exchanges in the case of Itaipu Power Plant.

The Missing Manifesto: What Economists Should Be Saying about Electric Utility Restructuring in the United States

It is time to re-check the assumptions of the energy and regulatory economists who propose major changes to traditional regulatory institutions and practices. The time is past due to challenge their vague assumptions about what constitutes effective competition, how to assess the reasonable prospects for such competition in a particular market, and what can and should be done to ensure efficient operations.

Strictly Business: Notes on Deregulating Electricity

As everyone reading this is surely aware by now, California's electric utility restructuring has gone badly awry. Unregulated wholesale prices for elec tricity have increased fourfold in the course of a year and over twelvefold on the spot market. In December 2000, power marketers priced gas-gener ated electricity that cost $250 a megawatt-hour to produce at $2,000 a megawatt-hour (the final negotiated price was $1,500). The state's Independent System Operator, which manages the deregulated power grid, accuses electric power generators and marketers of overcharging the state's power delivery companies by more than $6.2 billion between May 2000 and March 2001. Natural gas prices at the California border jumped to $30 per thousand cubic feet, six times the price elsewhere in the nation. With California's population accounting for 12 percent of the nation's and its $1.2 trillion gross state product accounting for 14 percent of America's GNP, this is hardly a provincial issue. The effect of skyrocketing wholesale energy prices is potentially de structive. Householders and small businesses have been hit hard. The Cali

1.7.2 System Approach of Electric Utility Restructuring in Developing Countries: An Outlook in Asia

AbstractThe design of a suitable power market is a major concern, particularly for the deregulation of the electricity supply industry (ESI) in Western countries. This has led to a realization of the need for reform and competition in developing countries also. However, there are fundamental differences between the two groups of economies in the maturity of the ESI structure, economic priorities and the role of the state in development. This paper, therefore, synthesises a model of reform which is sensitive to these realities. Consequently, the outlook is different from the prevailing tendency to simply transpose experience from elsewhere. The core issue that we identify is the approach to the transmission system. The case of the Electricity Generating Authority of Thailand (EGAT) is used as the main reference point due to its medium size and orientation towards restructuring. In addition, short sections on Sri Lanka and China are included to broaden the relevance of the discussion.

Evolution of electric utility restructuring in the UK

The author describes how, with primary goals to improve efficiency and lower prices, the United Kingdom took a phased-in approach to transitioning from a publicly run electricity system and a subsequent radical transformation to a competitive industry.

Evaluation of electric utility restructuring in the UK

The author describes how available statistics and consumer participation indicate that, though not perfect, the benefits of UK electric utility privatization and competition outweigh the monopolistic structures of the past.

Evolution of Electric Utility Restructuring in the UK

This article, the first of two, addresses the evolution of electric utility restructuring in the UK from its inception in 1988 to the present. (A subsequent article provides critical evaluations of the move to competition and the role of consumer interests in the reformation of the electric and gas regulating offices.) Elements include statutory foundations, political implications, and the pool structure. The foundations of electric utility privatization and the introduction of competition are discussed, citing the political implications, innovative pool structure, the phased implementation plan, critical evaluations, consumer interests, and regulatory reform. Recent restructuring policy enacted by the European Union suggests a similar model. The article also provides comparisons with the elements of electric utility restructuring in the United States and explores the UK's impact on restructuring in the European Union (EU).

Evaluation of Electric Utility Restructuring in the UK

Evaluation of Electric Utility Restructuring in the UK