ELECTRICITY RESTRUCTURING:
OPEN ACCESS AND MARKET DESIGN REVISITED
William W. Hogan
Center for Business and Government
John F. Kennedy School of Government
Harvard University
Cambridge, Massachusetts 02138 USA
Open Access Revisited: Lessons Learned
American Antitrust Institute
Arlington, Virginia
January 11, 2005
ELECTRICITY MARKET
Electricity Restructuring
Electricity restructuring is not easy in principle or in practice. The practice is producing many
second thoughts.
•
“Rethinking Electricity Restructuring,” Peter Van Doren and Jerry Taylor, Cato Institute,
Washington DC, November 30, 2004.
•
“Throwing the Baby Out with the Bathwater: A Rebuttal to Cato’s Report ‘Rethinking
Electricity Restructuring’,” Laura Merrill and Ken Malloy, Center for the Advancement of
Energy Markets, Washington DC, December 16, 2004.
•
“Restructuring at the Crossroad: FERC Electricity Policy Reconsidered,” American Public
Power Association, Washington DC, December 2004.
•
“Electricity ‘Restructuring’: What Went Wrong,” Thomas M. Lenard, The Progress and
Freedom Foundation, Washington DC, December 2004.
•
“Open Access Revisited,” American Antitrust Institute, 5th Annual Energy Roundtable
Workshop, Arlington VA, January 11, 2005.
•
…
(Earlier: "Electricity Market Restructuring: Reforms of Reforms," William W. Hogan, Journal of Regulatory
Economics, January, 2002 .)
2
ELECTRICITY MARKET
Electricity Restructuring
There is a tension between the role of market decisions and the special requirements of electricity
systems. This is about restructuring, not deregulation.
“Market mechanisms should be used where possible, but in circumstances where conflicts
between reliability and commercial objectives cannot be reconciled, they must be resolved in
favor of high reliability.” (Blackout Task Force Report, April 2004, p. 139.)
SHORT-RUN ELECTRICITY MARKET
LOCATIONAL SPOT PRICE OF "TRANSMISSION"
Energy Price
Short-Run
Marginal
Cost
(¢/kWh)
Energy Price
Short-Run
Marginal
Cost
(¢/kWh)
Price differential =
Demand
MW
Price at
7-7:30 p.m.
A Pa = 51
Marginal losses
+ Constraint prices
Constraint
Demand
7-7:30 p.m.
B
Energy Price
Pb = 66
C
Price at
9-9:30 a.m.
(¢/kWh)
Short-Run
Marginal
Cost
Demand
Energy Price
(¢/kWh)
Price at
2-2:30 a.m.
Demand
9-9:30 a.m.
Pc = 55
Short-Run
Marginal
Cost
MW
Demand
MW
Demand
2-2:30 a.m.
Q1
Q2
Qmax
MW
Price of "Transmission" from A to B = Pb - Pa = 15
Price of "Transmission" from A to C = Pc - Pa = -4
A decentralized market with supply and demand equilibrium over the network sets an ideal. But this
“completely bilateral” market is not possible in the case of electricity.
3
ELECTRICITY MARKET
Electricity Restructuring
The public policy debate over reshaping the electricity industry confronts major challenges in
balancing public interests and reliance on markets.
“The need for additional attention to reliability is not necessarily at odds with increasing
competition and the improved economic efficiency it brings to bulk power markets. Reliability
and economic efficiency can be compatible, but this outcome requires more than reliance on
the laws of physics and the principles of economics. It requires sustained, focused efforts by
regulators, policy makers, and industry leaders to strengthen and maintain the institutions and
rules needed to protect both of these important goals. Regulators must ensure that
competition does not erode incentives to comply with reliability requirements, and that reliability
requirements do not serve as a smokescreen for noncompetitive practices.”(Blackout Task Force
Report, April 2004, p. 140.)
Successful Market Design Challenge
The focus should be on investment incentives and
innovation, not short-run operational efficiency.
What should be the default rules when markets don’t
suffice?
Open Access
Non-Discrimination
EPAct 1992
Commercial
Incentives
Reliability
Rules
SMD
Network
Interactions
4
ELECTRICITY MARKET
Electricity Restructuring
The failures of electricity restructuring have ranged from the embarrassing to the negligent. Public
officials and market participants are at a crossroads. But the road to take depends on the
diagnosis of the failures and the identification of the needed corrections.
•
Go Back. Can markets work well in the case of electricity? If not, then the old model of
monopoly and regulation may be the best choice. But has too much happened since EPAct of
1992? It would be both difficult and expensive to go back, and the delay would create even
more crises.
•
Stand Still. Can we simply stay where we are and fix a few leaks, letting the regulators go
home early? The rules are in turmoil and market institutions are fragile. The ostrich strategy is
an invitation to continued surprises, and this should be no surprise.
•
Go Forward. Can we go forward, put good markets in place, and treat the costs of the
mistakes as the sunk costs of an expensive education? This requires leadership by the
regulators, in Washington and in the states. We know what we must do:
¾
¾
¾
¾
Regional Transmission Organizations.
Standard Market Design.
Significant Demand Participation.
Market Power Mitigation.
5
ELECTRICITY MARKET
A Market Framework
CRT, Regional Transmission Organization (RTO) Millennium Order (Order 2000) Standard Market
Design (SMD) Notice of Proposed Rulemaking (NOPR), provides a workable market framework that
is working in places like New York, PJM in the Mid-Atlantic Region, and New England.
The RTO Order SMD NOPR Contains a Consistent Framework
Bilateral Schedules
Coordinated
Spot Market
Bid-Based,
Security-Constrained,
Economic Dispatch
with Nodal Prices
Market-Driven Investment
License Plate Access Charges
at Difference in Nodal Prices
Financial Transmission Rights
(TCCs, FTRs, FCRs, CRRs, ...)
07/02
Poolco…OPCO…ISO…IMO…Transco…RTO… ITP…WMP…: "A rose by any other name …"
6
ELECTRICITY MARKET
SMD
The FERC “Successful Market Design” (SMD) faces major political opposition. A recent focus is
cost-benefit analysis. A priority issue should be investment incentives.
Cost-Benefit Analysis of (SMD)
Open Access
Non-Discrimination
Not SMD
Bilateral Schedules
at Difference in Nodal Prices
Coordinated
Spot Market
Bid-Based,
Security-Constrained,
Economic Dispatch
with Nodal Prices
Financial Transmission Rights
(TCCs, FTRs, FCRs, CRRs, ...)
License Plate Access Charges
Bilateral Schedules
at Difference in Nodal Prices
NO
T
Coordinated
Spot Market
Bid-Based,
Security-Constrained,
Economic Dispatch
with Nodal Prices
Market-Driven Investment
License Plate Access Charges
SMD
Market-Driven Investment
The cost-benefit focus should
be on investment incentives,
not operational efficiency.
With
workable
markets,
market participants spending
their own money would be
better overall in balancing
risks and rewards than would
central planners spending
other people’s money. If not,
restructuring itself would fail
the cost-benefit test.
Financial Transmission Rights
(TCCs, FTRs, FCRs, CRRs, ...)
Support Access Rules (assumed)
Provide Efficient Investment Incentives (unquantified)
Achieve Efficient Operations (big models, small benefits)
7
ELECTRICITY MARKET
SMD
There is experience with and without the “Successful Market Design” (SMD). There is one way to
get it right, and many ways to get it wrong. This produces different failure modes.
Cost-Benefit Analysis of (SMD)
Open Access
Non-Discrimination
Not SMD
Bilateral Schedules
at Difference in Nodal Prices
Bid-Based,
Security-Constrained,
Economic Dispatch
with Nodal Prices
NO
T
Coordinated
Spot Market
Bid-Based,
Security-Constrained,
Economic Dispatch
with Nodal Prices
Market-Driven Investment
Coordinated
Spot Market
License Plate Access Charges
Bilateral Schedules
at Difference in Nodal Prices
Market-Driven Investment
License Plate Access Charges
SMD
Financial Transmission Rights
(TCCs, FTRs, FCRs, CRRs, ...)
Financial Transmission Rights
(TCCs, FTRs, FCRs, CRRs, ...)
SMD working in
Mid-Atlantic, New York,
New England.
Planned for California (MRTU),
Midwest (2005), ...
...
1997
1998
CAISO
1999
8
ELECTRICITY MARKET
SMD-PJM
The first market design in PJM was not SMD, and failed abruptly.
Cost-Benefit Analysis of (SMD)
Open Access
Non-Discrimination
Not SMD
at Difference in Nodal Prices
Financial Transmission Rights
(TCCs, FTRs, FCRs, CRRs, ...)
NO
T
Coordinated
Spot Market
Bid-Based,
Security-Constrained,
Economic Dispatch
with Nodal Prices
Market-Driven Investment
Coordinated
Spot Market
Bid-Based,
Security-Constrained,
Economic Dispatch
with Nodal Prices
License Plate Access Charges
Bilateral Schedules
at Difference in Nodal Prices
Market-Driven Investment
License Plate Access Charges
SMD
Bilateral Schedules
Financial Transmission Rights
(TCCs, FTRs, FCRs, CRRs, ...)
...
1997
Key Defects
Single Zonal Price
Market suspended on first hot day in June 1997.
SMD implemented in April 1998.
9
ELECTRICITY MARKET
SMD-ISONE
The first market design in New England rejected SMD, and failed more slowly.
Cost-Benefit Analysis of (SMD)
Open Access
Non-Discrimination
Not SMD
at Difference in Nodal Prices
Bid-Based,
Security-Constrained,
Economic Dispatch
with Nodal Prices
Financial Transmission Rights
(TCCs, FTRs, FCRs, CRRs, ...)
NO
T
Coordinated
Spot Market
Bid-Based,
Security-Constrained,
Economic Dispatch
with Nodal Prices
Market-Driven Investment
Coordinated
Spot Market
License Plate Access Charges
Bilateral Schedules
at Difference in Nodal Prices
Market-Driven Investment
License Plate Access Charges
SMD
Bilateral Schedules
Financial Transmission Rights
(TCCs, FTRs, FCRs, CRRs, ...)
...
Key Defects
1998
Single Zonal Price
No Bilateral Schedules
Generation investments ignored constraints.
Rules then created barriers to entry.
SMD implemented in March 2003.
10
ELECTRICITY MARKET
SMD-CAISO
The first market design in California rejected SMD in many ways, and was already a failure before
the price explosion.
Cost-Benefit Analysis of (SMD)
Open Access
Non-Discrimination
Not SMD
Bilateral Schedules
at Difference in Nodal Prices
Bid-Based,
Security-Constrained,
Economic Dispatch
with Nodal Prices
Financial Transmission Rights
(TCCs, FTRs, FCRs, CRRs, ...)
NO
T
Coordinated
Spot Market
Bid-Based,
Security-Constrained,
Economic Dispatch
with Nodal Prices
Market-Driven Investment
Coordinated
Spot Market
License Plate Access Charges
Bilateral Schedules
at Difference in Nodal Prices
Market-Driven Investment
License Plate Access Charges
SMD
Financial Transmission Rights
(TCCs, FTRs, FCRs, CRRs, ...)
...
CAISO
Key Defects
1999
Zonal pricing
No economic dispatch, PX and market separation
"Dec" games and repeat of ISONE investment
problems. System "fundamentally flawed."
SMD proposal in MD02 of June 2003.
11
ELECTRICITY MARKET
SMD Cost-Benefit
Cost-benefit analysis is important, but the usual problem is in identifying the costs and the
benefits. Asking the wrong question to focus on what can be done may ignore what is most
important.
• Assume that many designs can support open access and non-discrimination.
• Assume that approximately the same investments will develop under any design.
• Focus on operating efficiency benefits that are likely to be small and may not be worth the effort.
Given these assumptions, the benefits of SMD may not be worth the costs. But these assumptions
dispose of the principal arguments for SMD, and for electricity restructuring.
The evidence is clear, albeit difficult to quantify with big model precision. The assumptions are not
correct, and market failures experienced under these assumptions have first order consequences.
The SMD is the “successful market design” and the only way known to work. There are many ways
to get it wrong, but the alternatives impose large and avoidable costs.
12
ELECTRICITY MARKET
Coordination for Competition
The Successful Market Design challenge dictates the need for some central institutions to support
markets through the seeming oxymoron of “coordination for competition.” What to do when
markets alone do not suffice?
Central institutions differ in the degree of involvement and impact on the market.
•
Central Coordination. Organized markets are required to avoid the “separation fallacy” and
facilitate exchange between willing buyers and willing sellers in voluntary transactions. (E.g., energy
purchase and sales in spot markets.)
o Design can be compatible with largely decentralized decisions.
o Emphasis is on consistent incentives.
o Evaluation remains neutral on market choices.
•
Central Procurement. Administrative determination of required products and services with
imposition of mandatory payments as a condition of participation in the system. (E.g., operating
reserves with charges collected through uplift payments.)
o Emphasis is on assured outcomes.
o Central judgment and mandatory payment replace market forces.
o Slippery slope could undermine broad purpose of electricity restructuring.
13
ELECTRICITY MARKET
Market Design Criteria
Guidelines for design of electricity market institutions include:
•
Define Products and Services Consistent with Real Operations.
•
Create Property Rights.
•
Establish Consistent Pricing Mechanisms.
•
Design Central Institutions to Emulate Efficient Market Operations and Incentives.
•
Target Structure and Scope of Central Interventions to Address Market Failures.
•
Set Principled Limits for Interventions Based on the Nature of the Market Failure.
•
Keep Focus on Goal of Workable, not Perfect, Markets.
The demand for action by regulators
demands that regulators keep their eye on the ball.
Focus on market design and market failures. Better to fix a bad design than to micromanage bad
decisions.
Be afraid of the reflexive market intervention that sows the seeds of intervention. Good advice might
be: “Don’t just do something, stand there.” Better advice would be: “Look, and look hard, before you leap.”
Intervene where needed, and know how to stop!
14
ELECTRICITY MARKET
Overcoming Market Failure
The need for central institutions arises from the existence of prominent forms of market failure.
Overcoming Market Failures
Network
Interactions
Security
Constraints
Lumpy
Decisions
Central
Coordination
or
Procurement
Unpriced
Products
Market
Power
A Dangerous Definition of Market Failure. “The market fails to do what the central planner wants.”
15
TRANSMISSION INVESTMENT
Challenges
Drawing a line between merchant and regulated transmission investment is a pressing
requirement.
• FERC Intentions. FERC’s stated policy is to support both merchant and regulated transmission
investment.
• FERC Actions. Motivated by pressure to stimulate transmission investment, recent FERC
decisions undermine the policy goal. The mandated economic investment rules in PJM and cost
socialization rules in New England defy the logic of electricity restructuring.
• Slippery Slopes. Regulated investment shifts the risks and provides cost recovery mechanisms
not available to the merchant investor. Absent a bright line between regulated transmission
investment and competing alternatives, there will be enormous and justifiable pressure on the
regulator to put generation and demand investments on the same playing field of reduced risk and
mandatory collection through regulated mechanisms. The intended modest domain of regulated
transmission investment would expand to include integrated resource planning. The end state
could be recreation of the central regulatory decision problems that motivated electricity
restructuring in the first place.
16
TRANSMISSION INVESTMENT
Challenges
Draw the line between regulated and merchant investments to focus on market failure.
• A Possible Line Between Merchant and Regulated Investment. Regulated investment for
economic upgrades would be limited to those cases where the investment is inherently large
relative to the size of the relevant market and inherently lumpy in the sense that the only
reasonable implementation would be as a single project like a tunnel under a river. Everything
else would be left to the market. This results in a two-part test:
o Economic Justification: The (expected net present value) aggregate benefits exceed the
aggregate costs. This is the usual social welfare calculation that applies to all regulated
investment under traditional regulation. Nothing new.
o Market Failure Justification: The investment is large and lumpy enough to materially affect
market prices, making the ex post rights worth less than the cost of the investment. A new test.
Some transmission investments and most other (generation and demand side) investments would
not meet the second test. This principled boundary could provide a plateau on the slippery slope.
• A Dangerous Definition of Market Failure. “The market fails to do what the central planner
wants.” This is the de facto definition apparent in FERC’s recent actions on transmission
investment. It is not hard to see where this leads. Most investments would be left to the purview
of the regulators and central planners, who operate a better collection agency.
If the central planners (or regulators) know what to do, then do it.
But if true, what is the need for electricity restructuring and markets?
17
ELECTRICITY MARKET
Defining Market Power
The conventional definition of market power addresses withholding some supply in order to profit
from higher prices on the reduced output. This is the easy case.
Defining Market Power: Withholding
P
p
p
Bids
MR
MC
m
Capacity Limit
c
Demand
q
q
m
c
Q
}
Monopoly Withholding
pm > p c = MC
•
Bids exceed marginal cost to set higher market clearing price.
•
Output is below capacity and price exceeds marginal cost.
18
ELECTRICITY MARKET
Defining Market Power
In practice, it may be difficult to define or recognize a significant use of market power. Consider
the conditions that arise with opportunity costs.
Defining Market Power: Is This Withholding?
Adding Opportunity Costs
P
Price Cap
p
c
MC
Bids
Demand + Reserves
Maximum
Marginal Cost
Capacity Limit
q
c
Q
pc > MC?
•
Bids exceed direct marginal cost.
•
Output is at capacity with reserves and price exceeds the direct marginal cost.
•
Is this an exercise of market power that deserves mitigation?
19
ELECTRICITY MARKET
Market Power
Market power exists in electric energy markets and its exercise can produce high prices. Market
power mitigation is important. However, there is less here than meets the eye.
•
California saw sustained high prices in 2000-2001. A widespread exercise of market
power has been cited for up to 50% of the price increases. 1
•
Other tests of the counterfactual simulations yield results implying that the exercise of
market power had little or no impact on electricity prices. 2
•
What looks like withholding may have an alternative explanation, and plant specific
investigations have yet to produce clear evidence of significant physical withholding. 3
•
Market power seems to be a manageable problem in the eastern RTOs.
•
Dynamic models produce different results than static, single-price simulations.
details matter. 5
•
“We do not have a good theory of oligopoly.”6
4
The
1
Severin Borenstein, James B. Bushnell, and Frank A. Wolak, “Measuring Market Inefficiencies in California’s Restructured Wholesale Electricity Market,” The
American Economic Review, Vol. 92, No. 5, December 2002, p. 1377.
2
Scott M. Harvey and William W. Hogan, “Market Power and Market Simulations,” Center for Business and Government, Harvard University, July 16, 2002
(available at www.whogan.com).
3
For example, the initial investigation by the California Public Utility Commission identifying instances of possible withholding during shortage hours. On
further examination the FERC Staff concluded that “[t]here is no evidence that any of the generators withheld any material amounts of available power during the hours
of the firm service interruptions.” Federal Energy Regulatory Commission, “Staff's Review of California Public Utility Commission's September 17, 2002, Investigative
Report On Wholesale Electric Generation,” March 26, 2003. p. 4, (emphasis in original).
4
Erin T. Mansur, “Measuring Welfare in Restructured Electricity Markets,” Yale University, September 3, 2004.
5
Julian Barquin, Maroeska G. Boots, Andreas Ehrenmann, Benjamin F. Hobbs, Karsten Neuhoff, and Fieke A.M. Rijkers, “Network-Constrained Models of
Liberalized Electricity Markets: the Devil is in the Details,” Cambridge Working Papers in Economics, CWPE 0405, January 2004.
6
Yves Smeers, Department of Mathematical Engineering and Center for Operations Research and Econometrics, Universit´e catholique
de Louvain, Louvain-la-Neuve, Belgium, “Market Power in Electricity,” SESSA Meeting Stockholm, October 7-8, 2004.
20
ELECTRICITY MARKET
Mitigating Market Power
Immediate adoption of a number of the key elements of the long-term market design would help
in the transition. Demand side participation would operate to moderate price spikes.
Half A Market Has No Solution
A Workable Market Has A Workable Solution
P
P
MC
MC
pc
Demand
Demand
Q
qc
Q
"The highest priority must therefore go to establishing the essential conditions of an ideally functioning energy market that
does not now exist: real-time metering and pricing at least on an hourly basis to a sufficient fraction of the market. Once
these are installed, wholesale price spikes will be automatically severely limited, and such spikes as continue would be
economically beneficent, in consideration of their effects on both the supply and demand side -- inducement of efficient
levels of capacity, on the one side, and of conservation, on the other."7
7
Alfred E. Kahn, "The Adequacy of Prospective Returns on Generation Investments Under Price Control Mechanisms," Electricity Journal, March 2002, p. 45.
21
ELECTRICITY MARKET
Mitigating Market Power
Within the general market structure of Order 2000, the Standard Market Design, and the Wholesale
Market Platform, there are many tools for mitigating market power as part of a transition to
competitive markets.
•
Cost-of-service regulation.
•
Divestiture.
•
Forward contracts.
•
Hard price caps.
•
Pay-as-bid auctions.
•
Soft price caps.
•
Installed Capacity Requirements.
•
Bid caps.
•
Ex-post Refunds
The transition rules must incorporate as much of the critical market design features as possible along
with an internally consistent method of moving from the old to the new. Hence, any transition framework
should include explicit consideration of how well it is likely to work in a market setting and how it will
ensure a transition to an efficient, workable market.
22
ELECTRICITY MARKET
Mitigating Market Power
The most difficult problem is distinguishing good high prices from bad high prices.
•
"Just and Reasonable." In the presence of shortages, high prices can be both efficient
and beneficent. Demand will respond, supply will enter, and the market will adjust.
•
"Unjust and Unreasonable." In the presence of strategic withholding, high prices are
symptoms of a market failure. Regulatory intervention in the short-run targets bad
behavior under market rules; or standard anti-trust litigation targets illegal activity.
•
"Just Unreasonable."8 In the presence of bad market design, exacerbated by
shortages or transmission constraints, high prices can be perverse outcomes resulting
from legal behavior and operation within the market rules.
Good policy would recognize the difference by, for example, targeting those who exercise market
power. And this same policy would exclude:
•
Small Single-plant Suppliers.
•
Energy Limited Facilities.
•
Net Buyers.
•
New Entrants.
•
Traders in Financial Contracts.
8
A California savant. For example, see California Independent System Operator, "Proposed Market Stabilization Plan of the California Independent System
Operator Corporation Provided in Response to Letter Order of March 30, 2001, Federal Energy Regulatory Commission, Washington DC, Docket No. EL00-95-012,
April 6, 2001, p. 2.
23
ELECTRICITY MARKET
Market Power: Summary
Market power exists in electricity markets and its exercise can produce high prices. Market
power mitigation is developing, but recent experience has increased the urgency of the problem
•
Restructured electricity markets can experience price spikes. California saw sustained
high prices in 2000-2001.
•
Useful prescription of mitigation policy depends on diagnosis of the underlying causes.
•
The complexity of electricity markets precludes a simple test of the exercise of market
power and creates behavior that appears similar or the same for generators with or
without market power. The error in the models is larger than the effects being estimated.
•
The best time for design of market power mitigation policy is before restructuring and
sale of generation assets.
•
Standard market design and effective demand-side participation on the short-term
energy market are necessary conditions for a workably competitive electricity markets.
•
Price caps, both hard and soft, create as many problems as they solve. Pay-as-bid
auctions produce no benefits relative to a uniform-price auction and create new problems
in the electricity market. Capacity requirements precipitate more regulation.
•
A combination of divestiture, bid-caps and vesting contracts can provide market power
mitigation during a transition, supporting a gradual move to a workably competitive
market.
•
As always, the details matter, a lot.
24
ELECTRICITY MARKET
Too Hard?
Will Congress and the states support successful market design to facilitate markets and honor the
priority of reliability?
Pressure on the FERC has been sustained
• Opposition from states in the Southeast and Northwest.
• FERC “White Paper” on the Wholesale Market Platform on April 28, 2003.
• Two days after the White Paper, Senate Energy Committee votes 13-10 to impose a two year
moratorium on the Standard Market Design. FERC announces it will wait until it sees the outcome
of the energy bill, which may be a long wait.
• To obtain unanimous consent and go to conference with the energy bill, Senator Shelby received a
commitment to delay SMD for years. This would “cripple” FERC. (FERC Chair Pat Wood, September 15, 2003)
• The failure analyses of Blackout 2003 focused on the right questions and pointed to the structural
connection with market design. Will there be an energy bill? An electricity bill?
• “These recent FERC actions signal a clear attempt by FERC to utilize creative mechanisms to
force electric utilities to join RTOs regardless of the economic merit or benefits to ultimate
ratepayers in the affected states.” (Letter to the President, nine southern governors, February 3, 2004)
• FERC launches new market power and market pricing reviews in 2004. The agenda includes
revisiting Order 888?
Will Congress avoid the “separation fallacy”? Will FERC be able to act responsibly and follow through?
Will the country endure a further long period of expensive experimentation with accidents waiting to
happen? Will we undo electricity restructuring in an attempt to save it?
25
William W. Hogan is the Lucius N. Littauer Professor of Public Policy and Administration, John F.
Kennedy School of Government, Harvard University and a Director of LECG, LLC. This paper draws on
work for the Harvard Electricity Policy Group and the Harvard-Japan Project on Energy and the
Environment. The author is or has been a consultant on electric market reform and transmission issues
for Allegheny Electric Global Market, American Electric Power, American National Power, Australian
Gas Light Company, Avista Energy, Brazil Power Exchange Administrator (ASMAE), British National
Grid Company, California Independent Energy Producers Association, Calpine Corporation, Central
Maine Power Company, Comision Reguladora De Energia (CRE, Mexico), Commonwealth Edison
Company, Conectiv, Constellation Power Source, Coral Power, Detroit Edison Company, Duquesne
Light Company, Dynegy, Edison Electric Institute, Edison Mission Energy, Electricity Corporation of New
Zealand, Electric Power Supply Association, El Paso Electric, GPU Inc. (and the Supporting Companies
of PJM), GPU PowerNet Pty Ltd., GWF Energy, Independent Energy Producers Assn, ISO New
England, Maine Public Advocate, Maine Public Utilities Commission, Midwest ISO, Mirant Corporation,
Morgan Stanley Capital Group, National Independent Energy Producers, New England Power Company,
New York Independent System Operator, New York Power Pool, New York Utilities Collaborative,
Niagara Mohawk Corporation, NRG Energy, Inc., Ontario IMO, Pepco, Pinpoint Power, PJM Office of
Interconnection, PP&L, Public Service Electric & Gas Company, Reliant Energy, Rhode Island Public
Utilities Commission, San Diego Gas & Electric Corporation, Sempra Energy Resources, SoCalGas,
SPP, Texas Utilities Co, TransÉnergie, Transpower of New Zealand, Westbrook Power, Williams Energy
Group, and Wisconsin Electric Power Company. The views presented here are not necessarily
attributable to any of those mentioned, and any remaining errors are solely the responsibility of the
author. (Related papers can be found on the web the web at www.whogan.com).
26