The Impact of Transparent Wholesale Markets on Market Participation: The U.S. Electricity Industry

Transcription

1 The Impact of Transparent Wholesale Markets on Market Participation: The U.S. Electricity Industry Energy Transitions: Regulation of Energy Markets at National, European and International Levels University of Eastern Finland Joensuu, Finland March 4, 2013 Ted Kury Director of Energy Studies Public Utility Research Center University of Florida

2 Public Utility Research Center Research Expanding the body of knowledge in public utility regulation, market reform, and infrastructure operations (e.g. benchmarking studies of Peru, Uganda, Brazil and Central America) Education Teaching the principles and practices that support effective utility policy and regulation (e.g. PURC/World Bank International Training Program on Utility Regulation and Strategy offered each January and June) Service Engaging in outreach activities that provide ongoing professional development and promote improved regulatory policy and infrastructure management (e.g. in-country training and university collaborations) 2

3 The Body of Knowledge on Infrastructure Regulation 8 New Regulatory Challenges on Clean Energy and Energy Efficiency about to be Released! 1. In terms of broad public policy, what is the role of the sector regulator in promoting renewable energy (RE) and energy efficiency (EE)? 2. What are standards that regulators can use to evaluate different approaches toward promoting renewable energy development and energy Efficiency? 3. What are the regulatory issues presented by renewable technologies (solar, wind, biomass, geothermal, and hydropower) and what are the basic characteristics of these options? 4. What are the different approaches for promoting renewable energy development and the role of the regulator under each approach? 5. If a government decides to consider feed-in tariffs (FITs) as a tool to promote distributed generation via renewable energy, what are the regulatory steps that should be taken to these implement rules? 6. If the government decides to use purchase power agreements as a tool to obtain renewable energy, what are the regulatory steps that should be taken to implement rules? 7. What is the role of the regulator in clean energy and energy efficiency? 8. How have countries linked policymaking related to energy efficiency to regulatory functions?

4 Thus, we believe that appropriate RTOs could successfully address the existing impediments to efficient grid operation and competition and could consequently benefit consumers through lower electricity rates resulting from a wider choice of services and service providers. In addition, substantial cost savings are likely to result from the formation of RTOs - FERC Order

5 Outline The Evolution of the U.S. Electricity Industry Previous Literature Estimation of Market Participation Results and Implications 5

6 Electricity Market Structure Generation Transmission Distribution Metering and Billing 6

7 U.S. Electric Industry Market Structure Generation Transmission Distribution Metering and Billing Divestiture of Generation, Transmission, and Distribution Functions Utilities Retain Assets, but Cede Control Area Responsibilities to ISO or RTO Utilities Retain Vertically Integrated Structure

8 Independent System Operators

9 Restructuring Status

10 Existing Literature Most studies focus on the effects of market restructuring, e.g. Kwoka (2006), Fabrizio, Rose, and Wolfram (2007), Kwoka, Pollitt, and Sergici (2010) FERC has started to collect data from ISOs and RTOs and now has three years of data, but does not explicitly consider access to markets as a metric Fabrizio (2012) studied make or buy decisions of 240 investor-owned utilities and found that those in ISOs tend to buy more 10

11 Transparent Wholesale Markets and Access Transparent wholesale markets provide opportunities for greater access Non-discriminatory access to the transmission system Transparent information on prices, supply, and demand Organized wholesale markets can restrict access May be more difficult to trade with an entity in a different market Compliance costs for utilities 11

12 Data Annual data for utilities in 48 states from Department of Energy Form 861 database Wholesale and retail sales Wholesale purchases Net generation Peak demand Ownership Control Area RTO and ISO composition (which control areas are included and when they joined) Year that the RTO/ISO established a transparent wholesale market 12

13 Panel Equation of Market Participation MktUtils Time ISO_Whl ISOYrs SumPk Federal Muni IOU Number of electric utilities Linear time trend Indicator whether the utility s control area is within an RTO/ISO that administers a transparent wholesale market Number of years that the utility s control area is within an RTO/ISO that administers a transparent wholesale market Summer peak of the utility (proxy for utility size) Indicator whether utility is a federal power project Indicator whether utility is municipally-owned Indicator whether utility is privately owned 13

14 Initial Sample Purchase Model Dependent variable is the fraction of total energy disposition that is purchased on the wholesale market Sample consists of balanced panel of utilities that serve retail electric load and generate some portion of that electricity Sales Model Dependent variable is the fraction of total energy sources that are sold on the wholesale market Sample consists of balanced panel of utilities that generated electricity and serve retail load 14

15 Fixed Effects Estimation of Initial Sample Table 3: Parameter Estimates for Initial Sample Variable % Purchased % Sold SumPk x ISO_Whl 5.15e-06** (2.13e-06) -2.38e-06 (1.51e-06) Muni x ISO_Whl (0.0163) *** (0.0102) IOU x ISO_Whl (0.0211) (0.0134) SumPk x ISOYrs -2.47e-07 (1.06e-06) -4.72e-07 (8.79e-07) SumPk x ISOYrs e-07 (1.13e-07) 4.71e-08 (9.29e-08) Muni x ISOYrs (0.0039) *** (0.0032) IOU x ISOYrs *** (0.0086) (0.0069) IOU x ISOYrs *** (0.0007) (0.0006) N Number of clusters (utilities) R-squared Rho (Standard errors in parentheses) (Blanks indicate coefficients omitted due to collinearity) * Statistically significant at the 10% level ** Statistically significant at the 5% level *** Statistically significant at the 1% level 15

16 Results with Initial Sample Market participation for individual utilities has increased over time and with more participants Larger utilities purchase more from transparent markets Privately-owned utilities purchase more in transparent wholesale markets Municipal utilities sell less initially, but sell more as they gain experience 16

17 Expanded Sample Purchase Model Dependent variable is the fraction of total energy disposition that is purchased on the wholesale market Sample consists of utilities that serve retail electric load and generate some portion of that electricity, or serve wholesale load Sales Model Dependent variable is the fraction of total energy sources that are sold on the wholesale market Sample consists of utilities that generated electricity and serve retail load or sold retail electricity in any year of the sample 17

18 Fixed Effects Estimation of Expanded Sample Table 4: Parameter Estimates for Expanded Sample Variable % Purchased % Sold SumPk x ISO_Whl 4.91e-06*** (1.23e-06) -2.40e-06 (1.48e-06) Muni x ISO_Whl 3.15e-03 (3.67e-03) *** (0.0097) IOU x ISO_Whl (0.0084) (0.0127) SumPk x ISOYrs -4.32e-07 (6.11e-07) -4.67e-07 (8.58e-07) SumPk x ISOYrs e-07** (6.46e-08) 4.56e-08 (9.02e-08) Muni x ISOYrs (0.0010) 7.35e-03** (3.01e-03) IOU x ISOYrs *** (0.0041) 1.60e-03 (6.60e-03) IOU x ISOYrs *** (0.0004) 7.21e-04 (6.13e-04) N Number of clusters (utilities) Rho R-squared (Standard errors in parentheses) (Blanks indicate coefficients omitted due to collinearity) * Statistically significant at the 10% level ** Statistically significant at the 5% level *** Statistically significant at the 1% level 18

19 Effect of the IOUxISOYrs and IOUxISOYrs2 Coefficients on Wholesale Market Purchases of the Expanded Sample 19

20 Effect of the SumPkxISOYrs and SumPkxISOYrs2 Coefficients on Wholesale Market Purchases of a 1000MW Utility in the Expanded Sample 20

21 Results with Expanded Sample Results are consistent with initial sample Market participation for individual utilities has increased over time and with more participants Larger utilities purchase more from transparent markets Privately-owned utilities purchase more in transparent wholesale markets Municipal utilities sell less initially, but sell more as they gain experience 21

22 Endogeneity Question Addressed possible endogeneity issue by only estimating model with states that restructured Results were consistent Addressed restructuring issue by only estimating model with states that did not restructure Results were consistent 22

23 Opportunities for Future Research Market access is still just one dimension of electricity service RTOs and ISOs may have effects on Reliability of electricity service Technical efficiency of electricity service Integration of new generating resources into the electricity grid Optimization of long term generation and transmission resource planning 23

24 Conclusions Statistically significant increases in market participation for larger utilities and for privately-owned ones Smaller municipal utilities do not significantly change participation in transparent wholesale markets Results are consistent with Rose and Joskow (1999), if transparent wholesale market is seen as an innovation 24

25 References Fabrizio, Kira R., Nancy L. Rose, and Catherine D. Wolfram Do Markets Reduce Costs? Assessing the Impact of Regulatory Restructuring on U.S. Electric Generation Efficiency, American Economic Review Vol. 97, No. 4 (2007), pp Fabrizio, Kira R Institutions, Capabilities and Contracts: Make or Buy in the Electric Utility Industry, Organization Science, Vol. 23 No. 5 (September-October 2012), pp Kwoka, John Restructuring the U.S. Electric Power Sector: A Review of Recent Studies, Report Prepared for the American Public Power Association. Kwoka, John, Michael Pollitt, and Sanem Sergici Divestiture Policy and Operating Efficiency in U.S. Electric Power Distribution. Journal of Regulatory Economics 38(2010), pp Rose, Nancy L., and Paul L. Joskow The Diffusion of New Technologies: Evidence from the Electric Utility Industry. The RAND Journal of Economics Vol. 21, No. 3 (1990), pp

26 Thank You Questions? Ted Kury 26