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Study: Wholesale Power Competition Generated $15B in Customer Savings

Competitive wholesale power markets in the eastern U.S. and Canada produced at least $15.1 billion in customer savings during 1999-2003 and resulted in dramatically improved power plant efficiencies nationwide, according to a study released last Tuesday by Global Energy Decisions Inc.

In March 2005, Global Energy was engaged to perform an independent analysis of wholesale competition at work today to identify and quantify the existing and foreseeable benefits to consumers of competitive electricity markets. The sponsors of the Global Energy analysis are BP Energy, Constellation Energy, Exelon, Mirant, NRG Energy Inc., PSEG Power, Reliant Energy, Shell Trading Gas and Power Co., SUEZ Energy North America and Williams.

Global Energy used its power market simulation software and independent price forecast advisory service to compare two scenarios. The first scenario simulated existing competitive market conditions. The second scenario modeled prices and costs as if competition had not existed; the traditional vertically integrated utility environment was assumed to have continued without any wholesale competition.

The competitive market produced $15.1 billion in savings compared to the costs of electricity without competition. The savings resulted from competitive pressures associated with wholesale market operations that minimized fuel expenses, operating and maintenance costs, depreciation and taxes.

"Global Energy found improved performance at power plants operated by traditional utilities, as well as those by competitive generators," said Gary Hunt, president of Global Energy Advisors, a Global Energy business unit. "Competitive market forces have changed the way existing power plants are operated, producing substantial improvements in efficiency and cost savings."

The study summarized the following efficiency gains:

Global Energy also examined the impact of the recent expansion of the PJM transmission market to include Midwest utilities and found $85.4 million in annualized savings for Eastern Interconnection wholesale customers through reduced transmission seams from combining utility transmission systems into regional transmission organizations (RTOs).

"While the majority of the production cost savings derived from the PJM market expansion occurred among PJM members, we also saw production cost savings with non-PJM participants," Hunt said. "Eastern interconnection power market customers, who have traditionally had higher electricity rates, saw real savings by increasing their access to lower cost Midwest generation," Hunt said. "Our study confirmed the 4.2% decline in load-weighted spot market power prices in PJM, as reported by the PJM Market Monitoring Unit earlier this year."

Global Energy's study compared the integration of Commonwealth Edison (ComEd), American Electric Power (AEP) and Dayton Power & Light (DPL) into PJM with a simulated 2004 market case in which ComEd, AEP and DPL did not join PJM.

Electric Power Supply Association CEO John Shelk said that the Global Energy analysis of eastern wholesale power markets "confirms what we in the competitive power sector have known for a long time -- competition reduces costs, lowers prices, drives innovation and efficiencies in the marketplace, rewards creative ideas and spurs growth. The pure nature of competition -- businesses vying for customers -- is the basis of our economy."

Shelk said the study "demonstrates the success thus far of federal policies intended to establish competitive wholesale markets. Considering that certain parts of the United States have not yet fully embraced these polices, we believe substantially more savings for consumers are possible in the future."

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ISSN © 2577-9877 | ISSN © 1532-1266
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