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on Aug 4, 14 • posted by rhoggett •

Lessons from America Series: A quick link to all 8 blogs – Lets not be so parochial in GB

A quick link to all 8 blogs: Lets not be so parochial in GB

Catherine Mitchell, IGov Team, 4th August, 2014

About Catherine: http://geography.exeter.ac.uk/staff/index.php?web_id=Catherine_Mitchell

Europe’s 500 million (m) population dwarfs the US’s 320 m but the US, with its 50 States, has a far bigger pool of differing energy regulatory situations to experiment and learn from than Europe’s 25 countries; and the States have a far longer history of working together than Europe does. American, or specifically the USA (as opposed to Canadian or South American) energy regulation is, at first sight, very different from that in place in Britain, or in most of Europe. However, this series of blogs (Lessons from America) illuminates practices in the US that British or European regulators and decision-makers could beneficially learn from.

The series of blogs in the Lessons from America series are listed below. It starts on 30 June 2014 with an introduction to US regulation. The 2 July 2014 blog introduced the most exciting regulatory experience in the US today, that of New York State’s Reforming the Energy Vision (the REV). This is attempting to take knowledge from California and Germany, and meld it together to enable an energy system transformation in NY State – population 19 million. The July 4 2014 blog wonders why the GB model of regulation is individual, director/CEO led with a part-time board rather than a full-time commission based model, as is the norm in US States. The 7 July 2014 blog then looked at the very similar, but very worrying analogies between the 2002 California energy crisis and the much-criticised but powerful momentum of the current Electricity Market Reform process in GB.

The blogs from 11 July 2014 onwards were more detailed and about particular market or regulatory policies. The 11 July 2014 examines how a large number of US States (all of the 17 States which have competitive retail except for Texas) offer a default service (sometimes known as a basic service or a standard offer service (SOS)) alongside retail competition. While design details of the default service clearly matter for success, the blog argued that some form of default service combined with vigorous support of the competitive retail market might be the way forward for Britain to break the dominance of the Big 6 in supply and inject some real change into the British energy system.

The 18 July 2014 blog examines ‘decoupling’. There is an implicit incentive in traditional economic regulation which compels network companies and suppliers to encourage consumption rather than to reduce energy use. These energy companies make more money selling energy than they can when encouraging an efficient use of it. This is at odds with current energy policy and is sometimes known as the throughput incentive. Many utilities in the US have dealt with this problem by ‘decoupling’ utility revenues from throughput incentives, and this policy is talked about in a short-hand way as decoupling. This is an eminently sensible policy. Britain does have a form of decoupling regulation in place. This blog examines whether the US policy is better.

The 1 August 2014 blog asks why it is that we in GB have a market-wide capacity mechanism which is a retrenchment, not a reform, of the electricity market; is great for the incumbents and their plant; is bad for the environment, because it is very conservative on the demand side; is unnecessarily expensive; and which is bad for GB innovation. The US is at the global forefront of CMs and inclusion of the demand side. For example, PJM reduces its peak by 10% in 2012 and the US average is 6% whilst the GB CM is going to be a very conservative 0.5-1%, and could be further cut by 50%.

There is obviously a huge amount which can be learnt from the 50 different US States which this series has not even started to think about never mind discuss. For example, why is it that aggregation works in the US, and is so poor in GB? Would FERC be a good model for Europe?

The point of the series was not to provide an overview of US regulatory policy but to highlight how many countries around the world are now grappling with how to implement an energy policy which really does lead to practice change and a sustainable, secure and efficient energy system. We in GB could save ourselves an awful lot of time and money if we spent a bit more time examining what other countries do, and learning from their successes (and failures).