Texas Electricity Market Restructuring Presentation

I was fortunate on Dec. 9th to address an audience in Austin, Texas on the costs of green energy, with a focus on the development of alternative energy resources in the restructured Texas electricity market. The event was organized by the Texas Public Policy Foundation.

My slides (TPPF-2010-12-09-Treadway-panel2-vf) explain that policy makers need to craft a market platform to encourage investments in new, alternative resources, such as solar, wind, energy efficiency, demand response, combined heat and power. Most importantly, new pricing options will allow consumers to participate in markets in meaningful ways. New investment will be made by entrepreneurs (project developers, retail energy suppliers, etc.) as well as by consumers thmselves. 

Consumers!? Invest in energy resources? Perhaps you thought consumers were simply destined to consume? Of course they consume, but in the electric industry, consumers have been systematically excluded from serious participation in the energy market. We are beginning to realize that consumer reactions to market prices can result in new investments — by consumers and others — in their homes and businesses. Consumers need information — pricing and technical information — to make better choices. They may invest in an efficient appliance, a smart appliance, an in-home device to display pricing and usage data, a distributed renewable energy technology, etc.

Consumers are the “missing half” of the electricity market during the past century. Consumers  have been presented with one-size-fits-all regulated energy tariffs which were design to provide predictable revenue recovery, not a price response! That bears repeating. Regulated electricity rate design operates under certain principles, key among which is revenue recovery. Regulators and regulated utilities place a premium on the stability and predictability of revenues. However, this thinking is changing. As consumers are presented with more diverse options and information, they respond in new ways. In competitive electricity markets, energy suppliers determine how best to package products, set prices, and offer solutions that are meaningful to consumers. It is a dynamic situation, and restructured retail electricity markets are in the very early stages of development.

Another key concept relates to a transition in thinking about the electric industry. Traditionally, we have viewed electricity as a commodity and we have talked about its price (cents per kWh or $ per MWh). Many people equate “competition in electricity” with competition among power plant operators and power marketers. Bulk power constitutes one-half of an electricity market. Consumers and their response to prices constitutes the other half. Over the next few decades, energy consumers in restructured retail electricity markets will adopt new behaviors and new technologies which fundamentally change the way the electric industry operates. More on that in an upcoming post.

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