The Potential Economic Impact of Electricity Restructuring in the State of Oklahoma: Phase I Report

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Because of the recent experiences of several states undergoing restructuring (e.g., higher prices, greater volatility, lower reliability), concerns have been raised in states currently considering restructuring as to whether their systems are equally vulnerable. Factors such as local generation costs, transmission constraints, market concentration, and market design can all play a role in the success or failure of the market. These factors along with the mix of generation capacity supplying the state will influence the relative prices paid by consumers. The purpose of this project is to provide a model and process to evaluate the potential price and economic impacts ... continued below

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Hadley, SW March 27, 2001.

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Description

Because of the recent experiences of several states undergoing restructuring (e.g., higher prices, greater volatility, lower reliability), concerns have been raised in states currently considering restructuring as to whether their systems are equally vulnerable. Factors such as local generation costs, transmission constraints, market concentration, and market design can all play a role in the success or failure of the market. These factors along with the mix of generation capacity supplying the state will influence the relative prices paid by consumers. The purpose of this project is to provide a model and process to evaluate the potential price and economic impacts of restructuring the Oklahoma electric industry. This Phase I report concentrates on providing an analysis of the Oklahoma system in the near-term, using only present generation resources and customer demands. In Phase II, a longer-term analysis will be conducted, incorporating the potential of new generation resources and customer responses. Oak Ridge National Laboratory (ORNL) has developed the Oak Ridge Competitive Electricity Dispatch (ORCED) model to evaluate marginal-cost-based and regulated prices for the state. The model dispatches the state's power plants to meet the demands from all customers based on the marginal cost of production. Consequent market-clearing prices for each hour of the year are applied to customers' demands to determine the average prices paid. The revenues from the sales are paid to each plant for their generation, resulting in a net profit or loss depending on the plant's costs and prices when it operates. Separately, the model calculates the total cost of generation, including fixed costs such as depreciation, interest and required return on equity. These costs are allocated among the customer classes to establish regulated prices for each class. These prices can be compared to the average market-based prices to see if prices increase or decrease with restructuring. An unchanging transmission and distribution (T&D) component is added to both types of generation prices to determine the overall price of power to each customer class. A base case was established for the state as a whole, using the set of plants and customer demands from 1999 based on data from various industry and government sources. Energy demands from the different customer classes were defined, including wholesale sales outside the state. Plant ownership by specific utilities, whether investor-owned, government, or cooperatives, was not used as a factor in the analysis, except in the generic cost of capital for the different types of utilities. The results showed an average price increase of roughly one cent per kilowatt-hour under a restructured market. This is because in a regulated market each plant will earn just enough to pay all costs and earn a reasonable return on equity. In a restructured market, where prices are based on marginal costs of the most expensive plant operating at any given time, some plants may earn little or nothing over the year while others earn more than the regulated rate of return.

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  • Other Information: PBD: 27 Mar 2001

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  • Report No.: ORNL/CON-482
  • Grant Number: AC05-00OR22725
  • DOI: 10.2172/814439 | External Link
  • Office of Scientific & Technical Information Report Number: 814439
  • Archival Resource Key: ark:/67531/metadc734137

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Office of Scientific & Technical Information Technical Reports

Reports, articles and other documents harvested from the Office of Scientific and Technical Information.

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  • March 27, 2001

Added to The UNT Digital Library

  • Oct. 18, 2015, 6:40 p.m.

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  • March 31, 2016, 1:11 p.m.

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Hadley, SW. The Potential Economic Impact of Electricity Restructuring in the State of Oklahoma: Phase I Report, report, March 27, 2001; United States. (digital.library.unt.edu/ark:/67531/metadc734137/: accessed November 23, 2017), University of North Texas Libraries, Digital Library, digital.library.unt.edu; crediting UNT Libraries Government Documents Department.