Johannes P. Pfeifenberger

The State of Performance-Based Regulation in the U.S. Electric Utility Industry

Abstract Performance-based regulation (PBR) has made substantial inroads in the electric utility industry, with at least 28 electric utility companies in 16 states presently operating under some form of comprehensive PBR. Many states have replaced (or combined) targeted incentive plans in their electric utility industries with broad-based PBR plans similar to those that are the predominant form of regulation in the telecommunications industry.

Efficiency as a Discovery Process: Why Enhanced Incentives Outperform Regulatory Mandates

Abstract Opponents of incentive regulation claim explicit rewards are unnecessary because utilities already operate under a “statutory obligation” to be efficient. But that view ignores that incentives are generally superior to mandates for eliciting performance gains, and that a firm cannot knowingly disavow and strategically withhold efficiencies it has yet to discover.

Using Virtual Bids to Manipulate the Value of Financial Transmission Rights

In this paper, we present a straightforward economic model that explains the incentives to manipulate nodal energy prices in a “Day 2” RTO market. The model distinguishes between legitimate market participation that increases overall market efficiency and manipulative behavior that distorts markets and reduces efficiency. The example we use is the placement of “virtual” load or supply to enhance the value of financial transmission rights. This model shows the incentives that drive a trader’s stand-alone decision to place virtual bids at a node, the change in those incentives if the trader also holds a FTR position tied to that node, and the potential profit-maximizing opportunity to lose money on the virtual bids to increase the value of the FTR position and overall portfolio. We show that intentional uneconomic trading of virtual bids to trigger a manipulation causes the divergence of day-ahead and real-time nodal prices and thus creates market distortions and inefficiencies. This model also identifies the elements needed to successfully execute such manipulations, linking the analysis to a broader framework for detecting or rejecting market manipulation. These results explain past manipulations and should assist future efforts to detect and prove or disprove manipulative trading behavior within the RTOs, irrespective of whether such oversight derives from the FERC and/or the CFTC. They also provide guidance to both compliance and enforcement efforts on how to define legitimate behavior and avoid potentially manipulative behavior to the benefit of overall market liquidity.

Competition to international satellite communications services1

Abstract Rapid construction of transoceanic fiber optic cables and the successful establishment of private satellite companies with inter-regional or global coverage have fundamentally altered the environment in which international telecommunications capacity is provided. This article presents industry data and discusses market developments which document substantial competition that has emerged in international facilities-based telecommunications. Intelsat, historically the largest provider of international telecommunications capacity, has seen its market position decline rapidly for all services and all major geographic market areas worldwide.

Purchased power — Hidden costs or benefits?☆

Abstract Purchased power may provide great rewards, but it carries associated risks which must be identified and accounted for. Better decisions about existing and future resource options will result if utilities and regulators accurately assess these risks and benefits.

It's time for a market-based approach to DSM

The problems of marketing energy efficiency to utility customers are not very different from those that have been met and overcome in other industries. If the utility community would take a fresh look at the issues and adopt a market-based approach to DSM, the DSM industry could prosper without simply throwing more money at the problem.

REx Incentives: PBR Choices that Reflect Firms' Performance Expectations

Abstract A class of incentive menus, called revealed expectations incentives, are structured so that it is in the self-interest of a regulated firm to choose the incentive option that reveals the firms own performance expectation.

In What Shape Is Your ISO

Abstract ISOs are now seen as fundamental to the development of competitive electricity markets. However, not all ISOs are equally capable of facilitating competitive markets efficiently and reliably. ISOs having a size and shape that poorly coincide with regional markets may not facilitate competition and may even hinder it.