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Wholesale Electricity Markets: The New England Story
New England is well ahead of much of the nation in deregulating its wholesale electricity markets. It was one of the first regions in the United States to open its marketplace to competition. Since that time, experience has shown that competitive wholesale electricity markets can succeed only if four ingredients are present.
Adequate power supply. New England's markets are among the most competitive in the nation and already deliver significant benefits. Market incentives introduced with competition have prompted an unprecedented investment in power generation. Since the markets opened in 1999, investors have financed a 30 percent increase in clean and efficient electricity supply. Going forward, ISO New England is implementing enhancements to its marketplace to ensure adequate investment in generation resources in the right locations.
Incentives for conservation. The region has also made great strides in encouraging demand-side participation in the marketplace, which is critical to maintaining system reliability and stabilizing wholesale electricity prices in times of high system demand. ISO New England's innovative Demand Response Programs provide financial incentives for large commercial users, such as factories or large office complexes, to reduce power use during tight supply periods or when wholesale electricity prices are high. New incentives, such as greater price certainty and a wider range of program options, continue to be introduced to encourage larger participation in these conservation efforts.
Effective transmission system. One of the greatest challenges the electricity industry faces is delivering its product to where it is needed most. ISO New England's comprehensive planning process has identified more than 200 transmission upgrades and additions necessary to reinforce system reliability and create stronger links between generation and demand. Five of six major 345 kV transmission projects identified in the planning process have already been approved by state siting councils. Many of these are in some of New England's areas of greatest concern.
A sound market structure. On March 1, 2003, ISO New England implemented Standard Market Design, a major redesign of the region's wholesale electricity market. This market structure provides for a more economically efficient marketplace and reliable power system for the six-state region.
The goal of a robust market is to harness the power of competition, the primary element that creates the delicate but essential balance between supply and demand. Competition creates strong incentives-incentives that encourage the development of new products and services-incentives that promote more efficient and reliable ways of producing and delivering electricity-and incentives that create responses in demand and lessen stress on the power system. Competitive electricity markets work best when they are guided by an established structure, with fair and understandable rules. Standard Market Design provides this structure.
