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Contents 

Study Scope

7

 

 

Carnegie Mellon Electricity Industry Center

8

 

 

Study Method

8

 

 

Executive Summary

9

 

 

1. The Electricity Market in Pennsylvania

18

 

 

1.1 Electric generation and sales in the Commonwealth

18

 

 

1.2 Restructuring and Pennsylvania market characteristics †††††††† †

20

 

 

1.3 Market expectations and performance††††††††

29

 

 

2. Review of Previously Identified Policy Options

34

 

 

2.1 Prior reports

34

2.1.1 Allegheny Conference on Community Development

34

2.1.2 Industrial Energy Consumers of Pennsylvania (IECPA)

36

2.1.3 Energy Security Analysis, Incorporated (ESAI)

36

 

 

2.2 Pennsylvania P.U.C. hearing on electricity price increases†††

38

 

 

2.3 Insights from other restructured markets

51

2.3.1 New Jersey auction

53

2.3.2 Maryland auction

53

2.3.3 Illinois auction

54

2.3.4 Auction prices and wholesale prices

54

2.3.5 Connecticut generation request for proposals

55

 

 

3. Factors Influencing Pennsylvania Prices

56

 

 

3.1. Market effects

56

3.1.1 Fuel prices

59

3.1.2 Transmission congestion

62

3.1.3 Capacity markets in PJM

64

 

 

3.2 Costs of Pennsylvaniaís Advanced Energy Portfolio Standard (AEPS)

65

 

 

3.3 Regulatory and tax effects

67

3.3.1 Competitive transition charge

67

3.3.2 Pollution control costs

68

3.3.3 Gross receipts tax in Pennsylvania and other states

69

3.3.4 Costs of using the market

 

69

4. Technical, Market, and Regulatory Options Analysis

71

 

 

4.1 Options to reduce locational marginal prices (LMPs)

71

4.1.1 Keep existing low cost generation

71

4.1.2 Use Pennsylvaniaís coal resources to best advantage

71

4.1.3 Encourage new generation to locate close to load

72

4.1.4 Real time pricing

72

4.1.5 Market-based demand response programs

74

4.1.6 Demand reduction programs

75

4.1.7 Incentives for new generation

78

4.1.8 Changes to the market auction model

80

 

 

4.2 Options for commercial and industrial customers to bypass LMP-based rates

82

4.2.1 Encourage co-generation and self-generation

82

4.2.2 Aggregate potential users of co-generation and self-generation

83

4.2.3 Take advantage of special situations for commercial and industrial customers

83

 

 

4.3 Provider of last resort (POLR) requirements

83

4.3.1 Risk premium

83

4.3.2 POLR auction timing

84

 

 

4.4 Change the climate for long-term electric power contracts

84

4.4.1 Allow POLR providers to sign long-term sales contracts

84

4.4.2 Encourage PJM to offer forward markets for ancillary services

84

4.4.3 Speed up the approval process for long-term contracts

85

 

 

4.5 Coal gasification strategies for energy

85

 

 

4.6 Transmission

86

4.6.1 Transmission planning

86

4.6.2 Transmission rights

86

 

 

4.7 Optimize the Advanced Energy Portfolio Standard after 2015

86

 

 

4.8 Tax options

87

4.8.1 Tax option metrics

87

4.8.2 Pennsylvania gross receipts tax

88

4.8.3 Cross subsidies

88

 

 

References and Notes

90

 

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