Making Competition Work in electricity SALLY HUNT John Wiley & Sons, Inc. Making Competition Work in electricity Founded in 1807, John Wiley & Sons is the oldest independent publishing company in the United States. With offices in North America, Europe, Australia, and Asia, Wiley is globally committed to developing and marketing print and electronic products and services for our customers’ professional and personal knowledge and understanding. The Wiley Finance series contains books written specifically for finance and investment professionals as well as sophisticated individual investors and their financial advisors. Book topics range from portfolio management to e-commerce, risk management, financial engineering, valuation and financial instrument analysis, as well as much more. For a list of available titles, please visit our Web site at www.WileyFinance.com. Making Competition Work in electricity SALLY HUNT John Wiley & Sons, Inc. ➇ This book is printed on acid-free paper. Copyright © 2002 by Sally Hunt. All rights reserved. Published by John Wiley & Sons, Inc., New York. Published simultaneously in Canada. No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning or otherwise, except as permitted under Sections 107 or 108 of the 1976 United States Copyright Act, without either the prior written permission of the Publisher, or authorization through payment of the appropriate per-copy fee to the Copyright Clearance Center, 222 Rosewood Drive, Danvers, MA 01923, (978) 750-8400, fax (978) 750-4744. Requests to the Publisher for permission should be addressed to the Permissions Department, John Wiley & Sons, Inc., 605 Third Avenue, New York, NY 10158-0012, (212) 850-6011, fax (212) 850-6008, E-Mail:
[email protected] This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is sold with the understanding that the publisher is not engaged in rendering professional services. If professional advice or other expert assistance is required, the services of a competent professional person should be sought. Wiley also publishes its books in a variety of electronic formats. Some content that appears in print may not be available in electronic books. For more information about Wiley products visit our Web site at www.wiley.com. ISBN 0-471-22098-1 Printed in the United States of America. 10 9 8 7 6 5 4 3 2 1 foreword ere is the book I’ve been looking for to guide me through the devilishly complicated experience of electric industry deregulation, drawing on the author’s direct involvement in this process in several of the countries that have undergone it—none of which, significantly, has seriously considered reversing the process. Some of its judgments are wondrously pithy. H California allowed itself to get into the dreadful position of designing its trading arrangements so as to rely on demand response, and then having customer prices frozen. There was no transition: it went cold turkey into a world of no installed reserve requirement, no demand response, no intelligent price caps, no anything. Equally, some of its recommendations: FERC should just hire Bill Hogan to set out the coherent set of trading arrangements that he has been advocating indefatigably for a decade, and drop all the paraphernalia of wheeling. More important, she explains why. Most valuable of all, she presents a clear, explanatory road map, a detailed exposition of the order in which to proceed, step-by-step, which steps are essential, which optional, which wo