While some may argue that California’s energy woes offer a prime reason for placing the electric competition genie firmly back in its bottle, a recent case study by a global consulting group asserts that California’s energy difficulties mask the fact that other power markets in the United States are not only surviving, but thriving, with the PJM market serving as the perfect example.
The report by PA Consulting, “PJM – Electric Power Competition That Works,” notes that in the wake of California’s energy crisis, the future of electric power restructuring and deregulation in the United States is increasingly being called into question. The growing national debate over the fate of electric power restructuring is couched more and more in stark terms of “to be, or not to be.” But PA Consulting argues that this “simplistic debate” presents the nation with the choice of either pushing ahead with restructuring and potentially facing California-like difficulties in other parts of the country or reverting back to a more intrusive, command-and-control regulatory system.
In PA Consulting’s view, limiting the national debate to these two extremes ignores the fact that California is not the typical model for competitive wholesale electricity markets. “Indeed, there are several competitive wholesale markets at work in the United States that differ significantly from California’s in both structure and results.” One of the most “dynamic, robust and successful” of these other regional wholesale electricity markets is the Pennsylvania-New Jersey-Maryland (PJM) market in the mid-Atlantic region. “Understanding why the PJM model has succeeded in many areas where the California model has failed may provide regulators, legislators and other interested groups with a powerful reference point in the growing debate concerning whether continued market reform in the electric power industry is in our future.”
The report notes that PJM offers an interesting example for a competitive market case study because it is similar in size to the California market and has a longer track record of spot market operations. While there are similarities in market size and spot market longevity, significant differences exist between PJM and California in terms of regulatory jurisdiction and market composition.
More specifically, the study points out that in terms of regulatory authority, the PJM market — unlike California’s — overlaps the jurisdiction of five states and the District of Columbia. In some ways, the multiple regulatory jurisdictions within PJM have allowed the market and market operator to remain largely independent of any one regulatory authority. In contrast, single-state markets such as California and New York have state regulators and legislatures that wield considerable influence and a stronger sense of ownership of the market and its actions. Some have argued that this control has been exerted to the detriment of market function and independence, while FERC has been troubled by single-state control.
By way of comparison, the PJM experience illustrates that, in a market operating across multiple jurisdictions, no single state can dictate conditions. In such an environment, the wholesale market will be regulated primarily by the Federal Energy Regulatory Commission, reducing the influence of state politics and allowing the market to adopt a broader regional perspective, the study notes.
“This case study provides a powerful counterpoint to those who would like to turn back the clock on electric power competition,” said Phillip Harris, CEO of PJM. “Our market model provides a blueprint for a working competitive marketplace that has been refined during four years of successful operation.”
PA Consulting is a leading global management, systems and technology consulting firm. A copy of the full report can be downloaded at PA Consulting’s web site at www.paconsulting.com.
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