Energy Institute Scholars Explore New Electricity Markets

 
Amidst Pennsylvania’s continued efforts to restructure its retail electricity market, a new initiative has been formed at Penn State to address concerns about affordability, reliability and efficiency. The Electricity Markets Initiative (EMI), under the direction of EMS Energy Institute Scholar Andrew Kleit, professor of Energy and Environmental Economics, has been created to undertake industry-relevant research that examines important policy questions in electricity restructuring and electricity markets throughout Pennsylvania and across the United States.

Electricity restructuring refers to the reorganization of the traditional electric service to allow charges to be separated into generation, transmission, distribution, and other services. This restructuring opens the marketing and purchase of electricity to competition. Distribution and transmission of electricity are considered natural monopolies and continue to be regulated by the government. Restructuring gives electricity generators incentives to invest in generation, which could lead to improvements in efficiency and expanded use of alternative energy. On the retail side, restructuring gives customers the opportunity to shop for power from a variety of firms based on price and product offerings.

According to the Pennsylvania Utility Choice Web site, electric customers in Pennsylvania were among the first given the ability to choose the company that generates their electricity with the passing of the Electricity Generation Customer Choice and Competition Acts in 1996. The first phase of restructuring began in 1998 when consumers in Pennsylvania were allowed to purchase their generation service from competitive suppliers under the protection of price caps on the generation service to allow for an orderly transformation to the open market. e second phase, which is currently in progress, involves the removal of these rate caps to allow the marketplace to set the cost of generation service for retail consumers in the Commonwealth.

While there are many advantages to the restructuring of electricity, challenges still remain in designing policies consistent with other goals for the electricity industry, including reliable infrastructure and minimized environmental impacts. In addition, since many aspects of retail electricity restructuring are relatively new, it is unclear how customers will respond to increased choice in purchasing electricity supplies. EMI will engage industry and regulatory partners in research studies that are designed to influence the ongoing debate about how the U.S. electricity market should address these challenges. EMI’s work will inform policymakers to help them implement appropriate policies for the restructured electricity industry.

The EMI is funded by a consortium of electricity market participants, and includes regulators and consumer representatives on its Advisory Board. Research proposals will be submitted to the EMI advisory board by EMS Energy Institute scholars and are subject to the Advisory Board’s approval. Potential topics include the market for retail electricity products, the benefits and costs of clean energy sources, such as wind and solar, and the environmental consequences of restructuring. The Initiative began on January 1, 2010, and is moving forward after the kickoff meeting held on February 2. The Initiative will also host an interactive Web site and intends to begin publishing material later this year.

EMI will focus research eff orts on issues facing the state of Pennsylvania; however, the intent is that the work will have broader value across the United States and even in other countries considering or active in electricity restructuring. A full EMI conference is planned for April 2011, in which EMI researchers and invited guests will make presentation about the findings of various studies and current issues affecting restructured electricity markets.