Reviving the Electricity Sector: Findings of the National Commission on Energy Policy

Report, National Commission on Energy Policy

August 2003

Author: John P. Holdren, Former Director and Faculty Chair, Science, Technology and Public Policy Program

Belfer Center Programs or Projects: Energy Technology Innovation Policy; Environment and Natural Resources; Science, Technology, and Public Policy

Committee Members: Marilyn Brown, Ralph Cavanagh, Archie W. Dunham, Rodney Ellis, Leo Gerard, F. Henry Habicht, John P. Holdren, Paul L. Joskow, Andrew Lundquist, Mario J. Molina, Sharon L. Nelson, William K. Reilly, John W. Rowe, Philip R. Sharp, Linda Stuntz, Susan Tierney, R. James Woolsey and Martin B. Zimmerman.

Executive Director: Jason Grumet

Wholesale markets continue to evolve slowly and erratically but are impeded by statefederal conflict, regulatory and legislative uncertainty, malfeasance, poor credit and outright collapses, of which Enron is only the most notorious. FERC's efforts to promote more efficient markets through regional transmission organizations and a wholesale market platform offer promise, but have generated confusion and opposition. In the last five years, increased generation competition has elicited more than 100,000 megawatts of gas-fired peaking and baseload capacity, which has contributed both to a period of relatively low wholesale prices in many regions and increased exposure to gas price volatility across the system. But competitors' losses have created substantial uncertainty about how quickly and on what terms capital markets will support additional investment throughout this sector. Indeed, investment in all categories of electricity infrastructure is down significantly, in part because of surplus capacity conditions in certain regions, but also because of uncertainty concerning which entities have the responsibility for identifying and making investments in the transmission and distribution networks, and uncertainties about how the associated costs will be recovered. A challenge in reviving these capital flows is to clarify prospects for cost recovery and reward: for example, when and on what terms will distribution utilities have the ability to enter into long-term contracts with generation service providers; how will distribution utility responsibilities interact with the opportunities created for competitive retail suppliers in states with retail competition; who has the responsibility for identifying needed enhancements to the transmission network; how will they be paid for securing them; and who will pay? The August 2003 blackout is a reminder of how much hinges on finding practical answers promptly.

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Full text of this publication is available at:
http://www.energycommission.org/ht/d/ContentDetails/id/1603/cat_id/

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Document Length: 12 pp.