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July 16, 2013
customers benefit from the flexibility to choose from a variety of technologies. products and services offered by competing providers. A broad regional wholesale market that provides a level playing field for all resources as well as accurate. In competitive markets. significant policy challenges threaten their long-term sustainability. Despite the proven customer benefits of well-structured electricity markets. . the pressure on retail providers to keep costs down and innovate further sharpens the need for the wholesale markets to operate as efficiently as possible.Market Principles C ompetitive electricity markets continue to demonstrate their substantial value to customers through lower prices. To provide clarity and guidance to those endeavors. The success of retail electricity markets is inextricably linked to the efficacy of wholesale markets. the following principles will be reflected in all of COMPETE’s positions and activities. And because retail providers shop in the wholesale market. timely and transparent prices is essential for the supply choices and innovative services that drive competition for retail customers. COMPETE will continue to promote and defend competitive electricity markets and to vigorously oppose policies that threaten the sustainability of existing markets. non-bypassable retail charges to recover the generationrelated costs of certain resources. increased efficiencies and service innovations that allow customers to more effectively manage their energy portfolios. and vice versa. preferential treatment of some resources. These challenges include government subsidized and rate-based generation in competitive markets. and resources procured without using a competitive market process. Based on the substantial value of electricity markets to customers.
creating greater reliability at the lowest possible price. demand. etc. as is the case under traditional regulation. Accordingly. Seeing price signals after consumption and other energy portfolio decisions have been made. Because of the unique characteristics of electricity. signal how much generation is needed. or having static prices that are unresponsive to changes in the market. Prices should perform certain basic functions: ensure that the least costly generators are selected to operate. Electricity supply in wholesale markets is comprised of a number of different services provided by different generators with different operating and cost characteristics. provide the tools to transparently manage price risks and provide the basis upon which resource developers can assess the value of investments based on market fundamentals (supply. Price Signals Prices should reflect market fundamentals. some generators are needed to follow the minute-to-minute variations in demand on the system and thus must be able to change output quickly. End use customers could elect to respond to prices by reducing demand or installing on-site generation. America: Powered by Competition . results in inefficient usage decisions and higher energy bills for customers. fuel prices. and be available to market participants as close to real time as possible. account for the location of transmission network bottlenecks.Electricity markets must have accurate and transparent price signals to guide investment and consumption decisions. market fundamentals can change quickly. For example. Distinct services should have distinct prices.). Pricing the various services separately helps ensure that the most efficient resources are used for each service. price signals are needed in time for customers to react to them and have the opportunity to make cost-saving adjustments.
keeps investment in potentially lowercost resources out of the market. Open Markets There must be no arbitrary limits on which entities. Michigan and California).g.Competitive markets must be open to all market participants without arbitrary restrictions on market participation. resources or customers may participate in wholesale or retail markets. Examples of arbitrary restrictions are the percentage limitations imposed in some states on how much load is subject to retail competition (e. it artificially limits the demand for service from competitive suppliers. Powered by Competition America: . Moreover. and leads to unnecessarily high prices. Preventing some customers from shopping for their electricity suppliers while allowing others to shop violates fundamental notions of fairness.. Preventing some customers from shopping for their electricity suppliers while allowing others to shop violates fundamental notions of fairness.
renewable intermittent generators. customers are forced to subsidize the choices of a resource. must meet the same obligations. Assuring a level playing field for all resources enables customer choice. storage facilities such as batteries and flywheels.Fair Rules & Practices Market rules and practices must be non-discriminatory so that all resources participate on a level playing ﬁeld. and must be compensated for a comparable service actually provided to the grid. A variety of resources can provide the services needed to keep supply and demand in balance. including traditionallyfueled generators. and ensures vibrant competition. and must be compensated for a comparable service actually provided to the grid. innovation and the lowest available prices for customers. Comparability: All resources must abide by the same rules. A level playing field also requires basing the market rules and practices on the principle of comparability: all resources must abide by the same rules. Otherwise. must meet the same obligations. . These resources have different operating characteristics that must be recognized by the market rules so that all have a fair chance to compete. and demand response.
. Some states seek to recover the costs of certain generation facilities from all customers through a non-bypassable surcharge on distribution wires service. . Surcharges for Generation Non-bypassable charges that retail customers are forced to pay must not be used to recover the costs of generation and other supply services. These charges are anti-competitive. Such charges can also saddle customers with risk of poor generation supply decisions and practices of others. over which the customer has no control.Non-bypassable surcharges are anti-competitive. Eliminating anti-competitive non-bypassable charges ensures that electricity customers pay for service based solely on voluntary contracts with competitive suppliers. acting as a tax on shopping customers by forcing them to pay twice for generation service if they choose a competitive supplier. Customers that shop for their retail energy service bear the risks of that choice. NJ LCAPP plants).g. acting as a tax on shopping customers by forcing them to pay twice for generation service if they choose a competitive supplier. and should not be asked to pay for services or resources they did not choose (e.
taking with them the investment and competitive discipline needed for a well-functioning market. However. like PJM. can result in non-subsidized competitors leaving the market. There must be strong protections from buyer-side market power.Subsidized Resources Subsidized resources distort the market and harm customers. subsidies must be paid by customers (or taxpayers) and. Where they exist. and should not be allowed to interfere in competitive markets. America: Powered by Competition . such as the Minimum Offer Pricing Rules (MOPR) in the organized regional wholesale markets. Resources are subsidized to the extent the price paid to them exceeds the price that would have resulted from an unrestricted market without government intervention. Another is by limiting procurements to a specific type of resource. Subsidies for supply resources can occur through various means. One way is when a state provides a guaranteed revenue stream to a new generator that is not available to competing existing generators. COMPETE recognizes that subsidies currently exist for energy technologies. to protect customers from the negative impacts of price subsidies. Subsidies can give the short-term illusion of reducing market prices by adding new supply resources. Subsidies unfairly pick winners and losers in the supply market and lead to above-market solutions and higher prices for customers. over time. such subsidies should be identified for consumers and there should be a plan in place to reduce and eliminate the subsidy within a reasonable time.
Competitive Procurements Utilities or states sometimes direct the procurement of resources to meet forecasted demand. these restrictions can unfairly pick winners and losers.Competitive procurements must be open to all qualifying resources. America: Powered by Competition . Requiring that competitive procurements consider all qualifying resources achieves the greatest customer benefit. However. and not restricted to speciﬁc technologies. locations or vintages. result in above-market solutions and uneconomic entry. Similar to subsidies. Requiring that competitive procurements consider all qualifying resources achieves the greatest customer benefit by ensuring that potentially lower-cost resources that can perform the needed service are not kept out of the market. or resources using certain technologies. eligible resources are sometimes restricted to new resources. Customers ultimately pay higher prices for their electricity. resources in certain locations.
which can include a capacity construct where needed. Resource Adequacy: The availability of an adequate supply of generation or demand responsive resources to support safe and reliable operation of the grid. Resource adequacy standards should be durable and not require modifications from year to year. and all resources should have equivalent obligations. mitigate price volatility.Market Based Resource Adequacy To ensure long-term resource adequacy. Resource adequacy standards provide incentives for the siting of resources for future reliability needs. electricity markets must have clear and transparent standards that rely on marketbased mechanisms. and help assure that load serving entities maintain adequate resources. Such standards should ensure sufficient incentives and meaningful obligations for all resources. . Resource adequacy is the availability of an adequate supply of generation or demand responsive resources to support safe and reliable operation of the grid.
efficient and adequate supply of electricity and to meet environmental goals. and reward efficiencies. America: Powered by Competition . attract infrastructure investment in the right places. foster renewable and demand response resources. Independence from market participants is essential to ensure that such important functions are performed in a non-discriminatory manner that ensures a level playing field. provide a level playing field for all resources. The organized markets are the best way to assure an affordable. are independent of any market participant. these organized markets provide the fair. RTOs and ISOs operate and manage the interstate electricity grid over large regions.Competitive Wholesale Markets Independently administered organized wholesale markets. such as those operated by Regional Transmission Organizations (RTOs) and Independent System Operators (ISOs). and produce prices that signal the true cost of resources needed for a wellfunctioning competitive market. are needed for competitive electricity markets. and dispatch their systems by means of competitive auction-based energy markets. They provide the tools that foster efficient investment and the products and services consumers want. enable innovation. transparent rules and the access to grid services needed for a level playing field. States that have restructured retail electricity markets but are not within the footprint of an RTO or ISO should establish an independent entity to perform the critical function of scheduling generation and transmission services. Accordingly.
Effective independent oversight provides the confidence in results that attracts transmission and generation investment and ensures customers of a reliable supply of electricity at the lowest available costs. Accordingly. there should be periodic assessments of market performance to ensure prices are accurate and the market is sustainable. and regularly evaluated. The fair market rules needed for a level playing field and efficient operation must be enforced. In addition. . Effective independent oversight provides the confidence in results that attracts transmission and generation investment and ensures customers of a reliable supply of electricity at the lowest available costs. Independent Oversight Competitive markets must have clear and transparent rules and effective independent oversight to ensure compliance with the rules and accountability to customers and regulators. appropriate sanctions must be imposed for violating rules to ensure that all participants have confidence in the market.
com Telephone (202) 745–6331 Fax (202) 738–0329 .C.Principles for WellFunctioning Competitive Electricity Markets Contact Us Compete Coalition 1317 F Street NW Suite 600 Washington. D. 20004 competecoalition.
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