A study released last week by the Electric Markets Research Foundation finds that traditionally regulated markets – those with vertically-integrated utilities responsible for generation, transmission, and distribution – are better equipped to keep the lights on than other market designs. The study was conducted by Christensen Associates Energy Consulting.
Today, about a third of Americans are served through regulated markets, with the other two-thirds relying on restructured markets for power delivery. In restructured markets, power delivery is managed by regional transmission operators (RTOs), with wholesale electricity prices being set by competitive bidding. According to the study, such markets continue to struggle with how to provide resource adequacy in the face of changing market conditions, while regulated markets have managed to avoid such problems.
According to the study’s sponsor, “last winter’s polar vortex exposed the future vulnerabilities of the electricity system in restructured markets as the power industry in the Northeast and Midwest scrambled to avoid blackouts while consumers paid unprecedented high prices for electricity.”
For example, during the January Polar Vortex, customers of PPL Corp. in central Pennsylvania saw wholesale prices hit $2,000 per megawatt-hour compared to $40 per megawatt-hour on a normal day. In Texas, prices reached the wholesale market cap of $5,000 per megawatt-hour for the first time ever, partly due to plant outages. Many analysts predict situations like these to worsen as EPA rules mature and new carbon rules take effect.
“Our nation needs to continually strive for better regulatory and market rules that will keep the lights on in restructured markets at a reasonable cost to consumers and the economy,” said Bruce Edelston, president of the Electricity Markets Research Foundation. “We recommend that regulators and legislators, at both the federal and state levels, closely examine the resource adequacy problem in restructured markets and develop solutions. The problem is here now. Not acting could have serious impacts on the nation’s economy.”