EMF WP 10.2: The Roles of Analytical Models in National Electricity Policy Debates: Issues and Frontiers

A number of modeling attempts to analyze the implications of increasing competition in the electric power industry appeared in the early 1970’s and occasionally throughout the early 1980’s. Most of these analyses, however, considered only modest mechanisms to facilitate increased bulk power transactions between utility systems. More fundamental changes in market structure, such as the existence of independent power producers or wheeling transactions between customers and utility producers, were not considered.

More recently in the course of the policy debate over increasing competition, a number of models have been used to analyze alternative scenarios of industry structure and regulation. In this energy modeling forum (EMF) exercise, we attempted to challenge existing modeling frameworks beyond their original design capabilities. We tried to interpret alternative scenarios or other means of increasing competition in the electric power industry in the terms of existing modeling frameworks, to gain perspective using such models on how the different market players would interact, and to predict how electricity prices and other indicators of energy behavior might evolve under the alternative scenarios.

We recognized from the outset that few, if any, current electricity market models are capable of accommodating comprehensively many of the key features of the current competitive trends in the U.S. electricity market, including: (1) competition in generation, especially between utility and non-utility sources; (2) transmission activity generated by competition; and (3) competition among retailers in scenarios allowing retail wheeling of electricity. Nonetheless, some important insights with existing models were possible.