Continental or Local Electricity Grids for the US - Conflicts between Different Interest
Groups: History and Semi-Analytical Tools to Facilitate Debate
Stephen C. Peck, Ph. D.
Visiting Scholar, SPEA
Indiana University, Bloomington
November 26, 2004
Abstract
Discussion of the appropriate structure of electricity markets in North America has
reached an impasse. A synopsis of US energy and environmental policy for the last thirty
years is provided as a background to thinking about appropriate electricity industry
structure. Efforts are described of the Electric Power Research Institute to lead to more
reasoned discussion of national electric issues. It is suggested that such an approach could
advance the discussion of electricity market structure.
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INTRODUCTION
Making changes to the massive electricity industry in the United States has proved more
difficult than industry experts expected. Many looked to the relative success of the
reconstruction of the electricity industry in England and Wales – initiated by the Thatcher
government in 1989 - and of the unbundling of the natural gas industry in the United
States – starting in the mid 1980’s - and anticipated that the same results might be
achieved for electricity in the United States. Few remembered the insights from the early
paper by Ronald Coase, “The Nature of the Firm” published in 1937 that sometimes
companies take the form they do because it is cheaper1.
A brief synopsis of thirty years of US energy policy is provided in Exhibit 1. The
organization was suggested by a long paper by Paul Joskow
http://econ-www.mit.edu/faculty/download_pdf.php?id=683 who took the nine
recommendations made in a book summarizing the Ford Foundation Energy Project - led
by Hans Landsberg of Resources for the Future - and then tracked what had happened in
US energy and environmental policy in the subsequent thirty years. The layout of the
table was suggested by the preoccupations of Edward Tufte
http://www.edwardtufte.com/tufte/ whose interest is the simple communication of
information. I added to Exhibit 1 selected publications and project management interests
of mine in the last thirty years as a pathway into more detail on energy and environmental
policy. Exact references to my articles are provided for the interested reader in the
attached bibliography, Exhibit 2.
The policy history of the electricity industry over the last decades is associated with
Landsberg’s second recommendation – to reform electricity pricing. The Carter
Administration’s Public Utility Regulatory Policy Act of 1978 and the Bush
Administration’s Energy Policy Act of 1992 set the stage for the restructuring of the
electricity industry. The Federal Energy Regulatory Commission attempted to establish
open transmission access with its orders 888 and 889 in 1996 and its order 2000 of 1999
encouraging the establishment of regional transmission organizations. But the industry
has been sharply divided on the desirability of open access and, in addition, the Federal
Energy Regulatory Commission has been in almost constant conflict with the states’
Public Utility Commissions represented by the National Association of Regulatory Utility
Commissioners - founded in 1889.
1
I found the answer by the summer of 1932. It was to realize that there were costs of using the pricing
mechanism. What the prices are has to be discovered. There are negotiations to be undertaken, contracts
have to be drawn up, inspections have to be made, arrangements have to be made to settle disputes, and so
on. These costs have come to be known as transaction costs. Their existence implies that methods of coordination, alternative to the market, which are themselves costly and in various ways imperfect, may
nonetheless be preferable to relying on the pricing mechanism, the only method of co-ordination normally
analyzed by economists. It was avoidance of the costs of carrying out transactions through the market that
could explain the existence of the firm in which the allocation of factors came about as a result of
administrative decisions. Excerpt from Coase’s Nobel Prize Acceptance Speech
http://nobelprize.org/economics/laureates/1991/coase-lecture.html
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The reformation of the California electricity industry has been used as an example of the
dangers associated with restructuring, particularly the energy crisis of the early 2000’s in
which not only were there rolling blackouts in California and wholesale electricity prices
ten times their normal level in the western US market, but the State Public Utility
Commission did not allow retail rates to rise. As a consequence, Pacific Gas & Electric,
one or the largest utilities in the United States was forced into bankruptcy and Edison
International and San Diego Gas & Electric (now Sempra) chose to work with the State
to resolve what were essentially also bankruptcies.
The United States with its Federal system and respect for States’ rights may not be
politically suited for the type of structural change which took place in England and Wales
with its strong central government which had the political will and capability to create a
single transmission company and several generation companies from the old Central
Electricity Generating Board. Perhaps North America would do better with ten strong
regional monopolies formed in politically homogeneous States which met most of their
load from their own generating stations and had only weak ties between systems and
limited wholesale markets.
For the United States, having learned now from a decade of “deregulation” and for many
other countries poised on the edge of the cliff, it may be worthwhile to take a deep breath
and consider the next steps.
Electricity restructuring in the US cannot be dealt with in isolation from what has been
happening in the electricity industry and in other parts of the energy industry. Current and
prospective issues associated with the consideration of electric structure in the United
States are:
•
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•
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•
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Turmoil in the Middle East and very high oil prices
Significant rise in natural gas prices and the prospect of LNG imports
Unwillingness of state PUC’s to allow electricity prices to rise in shortages
Failure of utility demand side programs to reduce peak demand
Concentration of coal generating capacity in the middle of the US
Investment boom and bust in natural gas generating plants in the late 1990’s
Downward pressure on emissions from existing coal plants initiated by the CAAA
Interest by electricity companies nationwide in new lower emitting coal plants
Interest in construction of new nuclear plants with passive safety features
Lack of resolution of the long term nuclear waste problem
Tiny projected expansion of electricity transmission capacity
Concern about the greenhouse effect caused by emissions of carbon dioxide
Relevant short histories of US energy and environmental policy for most of these issues
are also provided in table 1. Of particular relevance to the US electricity industry are
Landsberg’s recommendation 4: “Attempt gradual improvement of air quality and use
market mechanisms where possible”, his recommendation 6: “Reduce problems
associated with nuclear power generation”, his recommendation 7: “Learn about the
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greenhouse effect” and his recommendation 8: “Subsidize conservation and learn
about the barriers to deployment”.
What role can analysis play in forging consensus on the collective good of having a well
functioning US electricity industry? I describe next how analysis was used in the past in
trying to reach agreement for such a complex problem.
AN ANALYTICAL FRAMEWORK FOR ELECTRIC ISSUES
The Electric Power Research Institute (EPRI) was founded in 1973 after a power failure
blacked out the US East Coast in the late 1960’s. The founding President, Dr. Chauncey
Starr2, previously Dean of the School of Engineering at UCLA, created an organization
with voluntary funding from the US electric utility industry with a 2004 dollar annual
budget of about $500 million. Although created as a result of a failure of the transmission
system, Starr created a research management organization focused on the whole range of
electricity operations from generation (fossil, hydro and uranium based) through
electricity transmission and distribution, the end uses of electricity to the environmental
effects of electricity production distribution and use. As one of the key developers of risk
analysis applied to societal problems, he also created a research program on societal and
utility planning.
EPRI, a research management organization, was created as a bridge between the electric
utilities and the engineering and scholarly communities. As such, it had an elaborate
advisory structure composed of electric utility personnel from the technical manager to
the utility CEO level. As a non profit 501c (3) organization, it also had an Advisory
Council composed of non-utility personnel. The Advisory Council included seven Public
Utility Commission members nominated by NARUC and representatives of organizations
such as universities, environmental advocacy groups, industrialists and other
distinguished public figures. The Council reviewed ongoing EPRI research programs and
its plans for the future and also debated topics of contemporary energy and environmental
importance.
Many of these debates seemed quickly to reach impasse with the parties retreating to
previously held positions. EPRI senior management, notably René Malès, Division
Director of Energy Analysis & Environment, requested staff to create a framework that
might be used to help the Council conduct more constructive discussions. Charles Hitch3,
the distinguished economist, government official and university president was a member
of the Advisory Council and was invited to head a subcommittee to provide advice on the
development of such a framework. The work was done in the early 1980’s and was
reported by Hung Po Chao, Bruce Judd, Peter Morris and Stephen Peck in “Analyzing
Complex Decisions for Electric Utilities”, Long Range Planning (1985). The paper was
motivated as follows.
2
3
http://www.w2agz.com/Documents/csbio1.pdf
http://www.lionhrtpub.com/orms/orms-12-95/hitch-tribute.html
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“An electric utility operates in an environment that is affected by the policies of many
different parties including federal and state agencies and the utility itself, Systematic
analysis can help the utilities understand and communicate the implication of these
policies. The purpose of this paper is to illustrate the use of decision analysis as a tool for
organizing and evaluating high level policies that affect privately owned utility
companies. We explain the decision analysis approach using a highly simplified analysis
of policies directed at the utilities’ current financial dilemma.”
Chao et al. first illustrated the broad range of issues that might be debated using the
framework. Figure 1, National Electric Issues, repeated from the paper showed decisions
in the 1980’s susceptible to analysis, then the resolution of uncertainties in the 1980’s,
then a similar set of decisions and uncertainties for the 1990’s – representing the future –
and then outcomes to the several affected parties.
The approach taken by Chao et al. to decision analysis was one of iterative formulation
and solution of more complex problems in conjunction with a committee of stakeholders.
The first problem we worked on dealt with the problem of “financial plight”. The
background of this issue was that up to 1973 the annual growth rate of electricity demand
had been about 7%, implying a ten year doubling time. With the oil embargo of 1973 and
the resulting recession, electricity demand growth had fallen to around 3% a year.
However the construction programs of the utilities were still ongoing and excess capacity
seemed imminent. The utilities, unwilling to halt construction of new coal and nuclear
plants in mid stream, argued that electricity shortages were very costly and thus it was
better to complete the construction programs, even at the risk of overcapacity. This issue
was exacerbated in the early 1980’s by very high interest rates.
Figure 2 from Chao et al. makes specific the general decision analysis framework to that
related specifically to the financial plight of the utilities. The first analysis conducted with
the Hitch subcommittee is shown in figure 3. The first square represents a decision
adopted by a Public Utility Commission – whether to maintain the status quo or to adopt
easier regulation. The first uncertainty node represented the resolution of the financing
uncertainty, specifically whether or not the allowed rate of return would be greater or less
than the cost of capital. The second uncertainty node represented whether or not demand
growth would return to its prior robust rate. After both these uncertainties were assumed
resolved the utility would then make a contingent decision whether or not to expand –
based on the market to book ratio of its stock price. The outcome of any decision to the
customers was measured by consumer surplus minus the monetized cost of any outages
that would develop in high demand growth cases with no capacity growth.
Probability distributions for the uncertain variables were assessed in conjunction with the
Hitch subcommittee and the required computations conducted. The results of the
illustrative analysis are shown in figure 4. In the short term (five year period) the status
quo regulatory policy was better for customers because it kept the price of electricity
down, but it was worse for investors because it was more likely to lead to a low market to
book ratio. However in the long term, easier regulation was better for customers because
it avoided the shortages which were more likely with status quo regulation.
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In line with the iterative nature of these analyses, after discussion of the results of the first
analysis, the Hitch committee was concerned at the assumption that utilities would know
what regulatory policy was and then adjust their capacity expansion decisions
accordingly. This led to a second analysis by Hung Po Chao, Richard Gilbert and Stephen
Peck “Investing under Regulatory Uncertainty: What to do When the Rules Change”,
Energy Systems and Policy (1986). In this case the caricature was even simpler. A utility
was assumed to be making a choice between expanding using a capital intensive coal
plant or a fuel intensive natural gas plant. It was assumed that the coal plant was the
cheaper alternative. Notwithstanding commitments made before construction, the utility
managers would realize that after the plant was built, it would be a hostage to the Public
Utility Commission which, acting in the interest of customers, would choose a rate of
return lower than the cost of capital. Knowing this and wishing to minimize its losses the
utility management would adopt the strategy of building the (socially costly) natural gas
plant.
After the second analysis, Charles Hitch reached the end of his term on the Advisory
Council and the goal of analyzing a series of contemporary energy issues with the
Council using the framework was not really achieved. The Council reverted to
unresolved discussion of issues. However the impetus for this type of analysis moved to
the environmental field and EPRI sponsored research on integrated analysis of the acid
rain problem in the 1980’s and of the global climate change issue in the 1990’s.
Illustrations of this work done by EPRI staff were papers by Stephen Peck and Richard
Richels, "The Role of Information in the Acidic Deposition Policy Debates," Journal of
Business and Economic Statistics (1987) and by George Hidy and Stephen Peck, "Risk
Based Priorities for Climate Change Research", Journal of the Air and Waste
Management Association (1991) This interest in integrated assessment was continued
into the work of the National Acidic Precipitation Assessment Program and of the
International Panel of Climate Change.
However, as far as I know, this type of approach has not been used to think through
issues associated with the appropriate organization of the US electricity industry. I now
illustrate how this could be initiated.
THINKING ABOUT APPROPRIATE INDUSTRY STRUCTURES
The Midwest and Northeastern portions of the United States comprise a large electricity
market. There are many companies, most vertically integrated, but some now having
entered the generation sector of the industry generally with natural gas combined cycle
plants. Many of these entrants have fared very badly having constructed their plants in
unprecedented numbers in the late 1990’s and then seeing their stock prices decline to a
small fraction of their previous highs due to the excess capacity created.
How should this large electricity market be organized? In this first iteration, let us
consider what we want from an electricity system. Desirable characteristics are displayed
in table 1. We want the right investments made years in advance of the representative
hour at which electricity is dispatched. We want maintenance conducted appropriately in
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the months ahead of the dispatch hour and finally we want the right plants dispatched,
outages avoided and low prices during the dispatch hour.
What options are available to achieve these results? Table 2 displays eleven possibilities.
There are options for organizing generation; transmission; whether or not end use
customers can choose their own electricity provider; and we may have a choice as to
whether or not the PUC’s will keep retail prices from reflecting scarcity in times of
deficient electricity capacity.
Debating about what to do is complex. Let us choose two of the many alternatives
identified in Table 1. One alternative, Monopoly, would organize the Midwest and NorthEast of the country into a small number of large vertically integrated companies regulated
by States. This option might be attractive to NARUC in keeping control local. A second
alternative would be to pursue the path that seems to be preferred by the FERC and
attempt to have open transmission access. We are uncertain however if the approach
adopted would be to have a privately owned Independent Transmission Company (ITC)
like the National Grid Company in England and Wales or a Regional Transmission
Organization (RTO) in which independent companies would interact and make decisions
by consensus.
Table 3 displays each of these options as the columns of a table. The rows of the table are
the desirable characteristics articulated in the first table. It is possible to imagine a group
of stakeholders discussing and filling in text in each cell in the table as I have done in my
illustration. Then the best alternative in a row is assigned a value of 10, the worst a value
of zero and the intermediate a value of 5.
It is then possible to create a plot such as the one I have called “Comparison of monopoly
and de-integration”. I compare Monopoly with a probabilistic mixture of “Independent
Transmission Company” and “Regional Transmission Organization”. One can see that
given my inputs, Monopoly dominates on all characteristics except for cost of generation
and price of transmission.
I suspect that this is how analysis can start to be helpful in the debate between proponents
of different policies. Remember this is just the first iteration of an analysis of a very
complex issue. It might be possible to go back to the design of the options and create one
that does not impose such painful tradeoffs. Most of the bulleted items relating to the
history of the electricity industry and its linkages to other important parts of the energy
sector have not been dealt with in this first analysis. But it is possible to see a way ahead
– by an iterative strategy of learning what is most important, and then deepening the
analysis by including other issues.
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Exhibit 1: Landsberg recommendations, key energy policy issues, Peck publications, key projects and plans
1975-80
Natural Gas
Policy Act ’78
deregulates
new gas
RFF
Landsberg
1 Decontrol
natural gas
and its pricing
1980-1985
1985-1990
1990-1995
1995-2000
2000-
Federal
Energy
Regulatory
Commission
unbundles
gas ‘85
The Natural
Gas
Wellhead
Decontrol Act
‘89 removes
caps
Nesbitt, Peck
on terrorism in
California ‘03
Arab Israeli
war of ‘73
1’ Decontrol
oil and its
pricing
Reagan
removes
controls ‘81
Balson Peck
integrated
EPRI energy
model ‘80
Chao, Peck on
monopsony
premium ‘82
Nixon price
controls ‘74
Ford Energy
Policy and
Conservation
Act extends
price controls
‘75
Iran export
cessation ‘79
Carter
announces
gradual
decontrol ‘79
Harvey, Peck
on oil refining
investment
‘77
Chao, Peck on
OECD OPEC
game ‘82
Public Utility
Regulatory
Policies Act
mandates
marginal
costing (MC)
studies by
States and
cogeneration
purchase ‘78
2 Reform
electricity
pricing
Peck, Solow
on energy
economy
feedbacks ‘82
States study
MC; few
successful
adopters
Coastal
States
embrace
PURPA QF
power at high
prices
Energy Policy
Act initiates
unbundling ‘92
California starts
to restructure ‘94
FERC rules
888 and 889
attempting to
establish open
access ‘96
FERC issues
order 2000 to
establish
Regional
Transmission
Organizations
‘99
California
energy
crisis ’01-‘02
FERC issues
standard
market design
reflecting
impatience
with pace of
RTO
formation ’02,
softened ‘03
Midwest/east
outage ‘03
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Peck
Alternative
Investment
Models ‘74
Peck on
incentives for
capacity
expansion ’83
Peck on
Manne,
Srinivasan
Investment
models ‘76
Peck on
incentives for
technology
choice ‘84
Chao, Gilbert,
Peck on
hostage ‘84
Peck directed
for EPRI
Over/Under
Capacity
Expansion
Model ‘78
Chapel,
Peck, Vejtasa
on
technology
choices ’85
Chao, Peck
on market
mechanism
for electric
transmission
‘96
Nelson, Peck
on NERC
Fan ‘85
Chao Peck
Oren Wilson
on flow based
transmission
rights ‘00
Peck on future
structure of
electricity
markets ’03
Chao, Peck
on institutional
design for
electric
market ‘97
Chao, Judd,
Morris, Peck
on complex
utility choices
‘85
Chao, Peck
on reliability
management
‘97
Collaborative
organizations
in the
electricity
industry ‘04
Peck, Morris
on hourly
price behavior
in California
energy crisis
‘04
3 Use
government
science &
technology to
define
options; rely
on private
sector to
deploy
Braun, Gallini,
Peck, Richels
on R&D for
synthetic
fuels ‘79
Chao, Peck,
Wan on
demand side
R&D planning
‘85
4 Attempt
gradual air
improvement
and use
market
mechanisms
Chao Peck,
Wan on base
load R&D
planning ‘90
Decadal
National Acid
Precipitation
Assessment
Program
initiated
Balson, North,
Peck, Richels
on acid rain
decision
model ‘85
Chao, Peck
on decision
model for
environmental
R&D ‘99
Clean Air Act
Amendments ’90
create SO2
trading
Peck, Richels
on value of
information
for acid rain
‘87
Peck keynote on
hazardous air
pollutants ‘93
Chao, Peck
Wan on
tropospheric
ozone ‘94
Chao, Peck on
risk based
permit system
‘94
Peck directed
launch &
development of
successful
program on
magnetic field
health effects
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Ozone
standard
tightened ’97;
Toxics,
particulate
matter, Hg
become
prominent
Peck Keynote
on water ‘96
Peck on
valuing R&D
‘04
Peck Kavet on
value of
research for
EMF ‘05
New Source
Review cases
Bush tries to
provide
regulatory
clarity with
Clear Skies
Peck on a
strategic
stepped
approach to
improving air
quality in
China ‘02
Kendall, Peck,
Lee on
emissions
trading in
Pearl River
Basin ‘03
Peck on EPA
PM staff
paper ‘03
Peck
managing
sprawl ‘04
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Energy Policy
&Conservation
Act allows for
1 billion bbl
strategic
petroleum
reserve ‘75
Construction
cost over-runs
Three Mile
Island
accident ’79
5 Prepare for
oil disruptions
6 Reduce
nuclear power
problems;
eschew
recycling
Reprocessing
ban ‘77
Chao Peck
directed ’82
study of
stockpile
behavior of
utility regions
with National
Electric
Reliability
Council
Storage site
legislation ’82’92;
Test sales
Small
drawdown in
Desert Storm
‘91
Chernobyl
radiation
release ‘86
Relicensing
facilitated but
limited R&D
under Clinton
Bush intends
new plants;
Massachusetts
Institute of
Technology
Study ’03
describes
nuclear
expansion
scenario
Peck strategy
to use nuclear
as kernel to
restore EPRI
‘03
Clinch River
Breeder
Reactor
cancelled ‘83
Peck argued
for study by
EPRI of health
of 100,000
industry
nuclear
workers ’92;
conducted by
Battelle/NYU
Arrhenius
paper in
1890’s
Keeling series
of CO2
measurements
at Mauna Loa
starts in ‘58
7 Facilitate
coal use: but
learn about
greenhouse
effect
Convention on
Climate
Change
signed in Rio
advocates
atmospheric
stabilization '92
Peck, Richels
on effects of
climate on
utilities ‘89
Chao, Peck
Teisberg on
optimal policy
with stock
pollutant ‘89
Peck, Hidy on
climate R&D
‘91
Peck,
Teisberg
CETA ‘92
Craig, Levine,
Peck, Sathaye
on
greenhouse
policy around
world ‘92
Peck,
Teisberg on
value of
information for
climate ‘93
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Kyoto
Protocol calls
for 30% cut
‘97
Byrd Hegel
Amendment
of ’97 rejects
Kyoto
Peck,
Teisberg on
climate policy
with rate
dependent
damages
functions ‘94
Peck,
Teisberg on
policy with risk
damage
function ‘95
Peck, Wan on
simple
analytic
models ‘96
Peck on
effective non
US national
governance
nuclear
structures ‘04
McCain
Lieberman Bill
to cut US
emissions ‘03
Russia
ratification of
Kyoto ‘04
Chao, Peck on
how much and
who pays for
greenhouse
abatement ‘00
Peck summary
analysis of
McCain
Lieberman ‘03
Peck Teisberg
on long term
permits ‘04
Peck on
climate policy
with vintaged
capital ‘04
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EPCA
introduces
CAFÉ
standards ’75
8 Subsidize
conservation;
learn about
barriers to
deployment
Courts force
Reagan to
apply NEPCA
Proliferating
state
standards
force National
Appliance
Energy
Conservation
Act ‘87
Peck led EPRI
development
of model for
design of
demand
programs ‘80
Peck, Weyant
on electricity
growth ‘85
National
Energy Policy
&Conservation
Act standards
for appliances
‘78
Lovins in
Foreign Affairs
‘76
9 Remove
impediments
to solar
Bush supply
policies nixed
by Congress;
replaced by
EPAct ’92
supporting
conservation
New NEPCA
standards
approved by
Clinton
EPAct
stimulates
renewables
‘92
Clinton DOE
budgets
emphasize
renewables
CAFÉ
standards
successfully
resisted
Peck, Weyant,
Bosch on
industrial
demand ‘88
Carter Energy
Security Act,
consisting of
six pieces of
legislation
judged
ineffective
Peck served
4 years on
renewables
committee for
Salt River
Project
Improving
analysis – a
preoccupation
of Landsberg
Zellner, Peck
on flawed
macroeconometric
models ‘73
Peck was first
manager of
Stanford
Energy
Modeling
Forum
established by
Greenberger
& Hogan ‘78
Peck on
communicating
model based
information ‘80
Peck on
environmental
argumentation
‘03
Led efforts to
make EPRI
software
products
available to
members
Greenberger,
Peck on
strengthening
basis for
public
decision
making ‘04
The organizing theme of this presentation is the set of nine policy recommendations made by the group of
energy experts led by Hans Landsberg of Resources for the Future and reported in “Energy the Next
Twenty Years” (1979), Cambridge, Ballinger.
The events leading up to 1979 and subsequent are then summarized. Primacy sources for this narrative are:
Energy Policies and their Consequences after 25 years by Paul Joskow, Killian Professor at MIT, July 2003
http://econ-www.mit.edu/faculty/download_pdf.php?id=683
Paul L. Joskow, Transmission Policy in the United States
http://econ-www.mit.edu/faculty/download_pdf.php?id=1003
Additional other sources were used.
References to papers by Peck et al are provided in the attached partial CV.
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Exhibit 2: Bibliography of Stephen C. Peck, Ph.D.
Phone: 812 339 7406
E-mails: Peck_Stephen@msn.com, stpeck@indiana.edu
BOOKS
S. C. Peck, Tests of Alternative Models of Investment for the Electric Utilities Industry, Garland Publishing
Inc., 1984.
PUBLISHED PAPERS
S. C. Peck R .J. Kavet, “Research Strategies for Electric & Magnetic Fields and Cancer” forthcoming in
Risk Analysis, 2005
S. C. Peck and T. J. Teisberg, “Securitizing the Environment: A Property Rights Approach to Managing
Climate Change”, March 2003. Forthcoming in Risk and Uncertainty in Environmental and Natural
Resource Economics, Eds. E v-Ierland and D. de Geus, Edward Elgar, 2004.
H.P. Chao, S.C. Peck, S. Oren and R. Wilson, “Flow Based Transmission Rights and Market Based
Congestion Management”, Electricity Journal, Fall, 2000
H.P. Chao and S. C. Peck, “A Decision Model for Environmental R&D", Environmental International, Vol.
25, No. 6/7, 1999
H.P. Chao and S.C. Peck, "Greenhouse Gas Abatement: How much? Who pays?” Resource & Energy
Economics, 22 1-20, 2000
S.C. Peck and T. J. Teisberg, "Incentives for Regions to Participate in a C02 Emissions Control
Agreement", Energy Journal, 1999
H.P. Chao and S. C. Peck, "Reliability Management in Competitive Electricity Markets", Journal of
Regulatory Economics; 14; 189-200, 1998
S.C. Peck and T.J. Teisberg, "C02 Concentration Limits, The Costs and Benefits of Control, and The
Potential for International Agreement" Note Di Lavore 6-98, Fondazione Eni Enrico Mattei, Milano, Italy,
January 1998
H.P. Chao and S. C. Peck, "An Institutional Design for an Electricity Contract Market with Central
Dispatch", Energy Journal, 18, No. 1, 1997
S.C. Peck and T.J. Teisberg, "International C02 Emissions Targets and Timetables: An Analysis of the
AOSIS Proposal," Environmental Modeling and Assessment, 1, No. 4, pp. 219-227, 1996
S. C. Peck and Y.S. Wan, "Analytic Solutions of Simple Optimal Greenhouse Gas Emission Models",
Economics of Atmospheric Pollution, NATO ASI Series, 2. Environment - Vol. 14, 1996
S.C. Peck, "Managing & Protecting our Water Resources", Water, Air and Soil Pollution, 90, 11-20, 1996
H.P. Chao and S. C. Peck, "A Market Mechanism for Electric Power Transmission", Journal of Regulatory
Economics: 10:25-59, 1996
S.C. Peck and T.J. Teisberg, "Uncertainty and the Value of Information with Stochastic Losses from Global
Warming", Risk Analysis 16, No. 2, pp. 227-235, 1996
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S.C. Peck and T.J. Teisberg, "Climate Change and the Value of Technological Innovation Under
Uncertainty," Proceedings of the 1995 Greenhouse Gas Emissions and Mitigation Research Symposium,
National Risk Management Research Laboratory, Air Pollution Prevention Control Division, U.S.
Environmental Protection Agency, Washington, D.C., June 27-29, 1995
H.P. Chao and S. C. Peck, "Spatially Interconnected Spot markets for Electricity: Theory", Festschrift in
honor of Alan Manne
S.C. Peck and T.J. Teisberg, "Optimal C02 Control Policy with Stochastic Losses from Temperature Rise",
Climatic Change, 31, pp. 19-34, 1995
S.C. Peck and T.J. Teisberg, "International C02 Emissions Control: An Analysis Using CETA," Energy
Policy, 23, No. 4-5, pp. 297-308, 1995
S. C. Peck and T. J. Teisberg, "Optimal CO2 Emissions Control with Partial and Full Worldwide
Cooperation: An Analysis Using CETA", Energy Policy, 1995
S. C. Peck and T. J. Teisberg, "Optimal Carbon Emissions Trajectories When Damages Depend on the Rate
or Level of Global Warming", Climatic Change, 28, pp. 289-314, 1994
S. C. Peck and T. J. Teisberg, "Summary of Optimal CO2 Emissions Control with Partial and Full
Worldwide Cooperation: An Analysis Using CETA", IIASA, January 1994
H.P. Chao, S.C. Peck, Y.S. Wan, "Managing Uncertainty: The Tropospheric Ozone Challenge", Risk
Analysis, August 1994
S. C. Peck and T. J. Teisberg, "Cost Benefit Analysis and Climate Change", Carbon Emissions Control
Strategies: Cost and Policy Options, Stanford University Press 1993
S. C. Peck and T. J. Teisberg, "The Importance of Nonlinearities in Global Warming Damage Costs"
Assessing Surprises and Nonlinearities in Greenhouse Warming, Proceedings of an Interdisciplinary
Workshop: Resources for the Future. May 1993
S. C. Peck, Keynote Address, Conference on Managing Hazardous Air Pollutants, Washington, D.C.,
November 1992. Published in Managing Hazardous Air Pollutants: State of the Art, May 1993
S. C. Peck and T. J. Teisberg, "Global Warming Uncertainties and the Value Of Information: An Analysis
Using CETA", Resource and Energy Economics, 15, No. 1, pp. 71-97, 1993
S. C. Peck, "Economic Efficiency", The Encyclopedia of the Environment, Spring 1994
S. C. Peck and T. J. Teisberg, "Externalities, Global Warming Uncertainties and Coal Development",
Proceedings of World Coal Conference, London, England, March 1993
S. C. Peck and T. J. Teisberg, "CO2 Emissions Control: Comparing Policy Instruments", Energy Policy,
Vol. 21, No. 3, pp. 222-230, 1993
P. Craig, M. Levine, S. Peck, J. Sathaye, "Strategies for Addressing Global Climate Change: Policy
Perspectives from Around the World", Energy, 17, No. 12, Pergamon Press
S. C. Peck and T. J. Teisberg, "CETA: A Model for Carbon Emissions Trajectory Assessment", Energy
Journal, 13, No. 1, pp. 55-77, 1992
G. M. Hidy and S. C. Peck, "Risk Based Priorities for Climate Change Research", Journal of the Air and
Waste Management Association, December 1991
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S. C. Peck, and T. J. Teisberg, "A Framework for Exploring CO2 Control Paths Which Minimize Energy
and Environmental Costs." Proceedings of the MIT/University of Tokyo Workshop on Economic Energy
Environmental Modeling for Climate Policy Analysis, January 1991
S. C. Peck, "The Greenhouse Effect: The Role of the Electricity Industry," Energy and Environment in the
21st Century, MIT Press, Cambridge, 1991
H. P. Chao, S.C. Peck, Y.H. Wan, "A Strategic R&D Planning Model with an Application to an Energy
Research Organization," Applied Stochastic Models & Data Analysis, Vol. 6, 1990
S. C. Peck and J. P. Weyant, "Environmental Regulation and Competition in the U.S. Electricity Industry,"
Proceedings of Canadian Electrical Association's Demand-Side Management Conference, Toronto, October
1990
S. C. Peck, H. P. Chao, T. J. Teisberg, "Optimal Control and Learning Strategies when Environmental
Costs Are Cumulative," Proceedings of the IFAC/IFORS/IAEE Symposium on Energy Systems,
Management and Economics, Tokyo, October 1989
S. C. Peck and John P. Weyant, "Energy Markets in the 1990s and Beyond", Proceedings of the 11th IAEE
North American Conference, October 1989
S. C. Peck, "U.S. Electricity Technology: Risks, Impacts, and Choices,” Global Energy and Associated
Ecological Problems, Joint Workshop Proceedings of The National Academy of Sciences and The
Academy of Sciences of the USSR, Moscow, October 1989
C. R. Nelson, S. C. Peck, R. G. Uhler, "The NERC Fan in Retrospect and Lessons for the Future", Energy
Journal, Volume 10, No. 2, 1989
S. C. Peck and R. G. Richels, "The Greenhouse Effect: How It Can Change Our Lives: From an Industry
View", EPA Journal, January/February 1989
S. C. Peck, "Roles of EPRI and the U. S. Electric Utility Industry in Environmental Protection",
Proceedings of the Twenty Fifth Anniversary Conference, Ente Nazionale per l'Energia Electtrica (ENEL),
October 1988
S. C. Peck, D. K. Bosch, J. P. Weyant, "Industrial Energy Demand", Resources and Energy 10, Fall 1988
S. C. Peck and R. G. Richels, "The Role of Information in the Acidic Deposition Policy Debates," Journal
of Business and Economic Statistics, April 1987
H. P. Chao, R. J. Gilbert, and S. C. Peck, "Investing under Regulatory Uncertainty: What to do if the Rules
Change," Energy Systems and Policy, Volume 9, Number 4, 1986
S. C. Peck, "Econometric Aspects of Firm Growth Behavior," Firms and Markets, Croom Helm, 1986
H. P. Chao, S. C. Peck, Y. H. Wan, "LOAD: An Electric Technology R&D Planning Model with
Contingent Decisions", Resources and Energy 7, 1985
S. C. Peck and R. G. Richels, "The Role of Information in Environmental Policy Debates," Proceedings of
the Air Pollution Control Association, 1985
C. R. Nelson and S. C. Peck "The NERC Fan, A Retrospective Analysis of the NERC Summary Forecasts,"
Journal of Business and Economic Statistics, July 1985
W. E. Balson, D. W. North, S. C. Peck and R. G. Richels, "Decision Analysis Framework for Acid
Deposition Policy Analysis," Proceedings of American Power Conference, 1985
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S. C. Peck and J. P. Weyant, "Electricity Growth in the Future," Energy Journal, 6, No. 1. 1985
H. P. Chao, B. R. Judd, P. A. Morris and S. C. Peck, "Analyzing Complex Decisions for Electric Utilities",
Long Range Planning, 18, No. 2, April 1985
S. W. Chapel, S. C. Peck and S. A. Vejtasa, "Evolving Technologies, Utility Incentives and Alternative
Financing and Cost Recovery Methods," Resources and Energy, January 1985
H. P. Chao, R. J. Gilbert and S. C. Peck, "Conflicts and Common Grounds: Customer vs. Investor
Valuations of Power Technologies," Public Utilities Fortnightly, April 26, 1984
S. C. Peck and A. Zellner, "Simulation Experiments With a Quarterly Macroeconometric Model of U.S.
Economy," Proceedings of the Australasian Conference of Econometricians, in Econometric Studies of
Macro and Monetary Relations, A. Powell and R. Williams (eds.), North-Holland, 1973, reprinted in A.
Zellner Basic Issues in Econometrics, University of Chicago Press, 1984
S. C. Peck, "Utility Technology Choice under Regulatory Risk," Proceedings of IMACS Conference,
Summer 1984
S. C. Peck, "Electric Utility Capacity Expansion: Its Implications for Customers and Stockholders, Energy
Journal, 4, 1983
S. C. Peck and J. L. Solow, "Domestic Energy: A Forgotten Factor in Energy Economy Interactions,"
Energy Journal, 3, No. 3, 1982.
S. C. Peck, "Technical Discussion of Intermediate Term Oil Import Reduction Policies," Appendix in
Energy Vulnerability, Ballinger 1982
S. C. Peck and J. L. Plummer, "Intermediate Term Oil Import Reduction Policies," Chapter in Energy
Vulnerability, Ballinger 1982
H. P. Chao and S. C. Peck, "Coordination of OECD Oil Import Policies: A Gaming Approach," Energy,
1982
H. P. Chao and S. C. Peck, "Energy Policies and the Oil Import Premium," Proceedings of 4th International
Conference on Alternative Energy Sources, Miami, FL., 1982
S. C. Peck, "Communicating Model Based Information for Energy Debates: Two Case Studies," Interfaces,
October 1980
S. C. Peck and J. H. Udinsky, "Tender Offers and Two-Step Acquisitions,” excerpted in Economic
Perspectives on Corporation Law and Securities Regulation, edited by R. Posner and K. E. Scott. Little,
Browne and Co., 1980
W. E. Balson and S. C. Peck, "The Integrated Forecasting Model: A Progress Report," Energy Policy
Modeling, United States and Canadian Experiences, Vol. II, Martinus Nijhoff Publishing, 1980
S. C. Peck, "Six Bridges between the Builders and Users of Energy Models," Proceedings of the Second
IGT Symposium on Energy Modeling, 1979
C. Braun, N. Gallini, S. Peck, R. Richels, "A Decision Analysis of Alternative Synthetic Fuels Programs,
Some Illustrative Results," Proceedings of the Lawrence Symposium, 1979
S. Harvey and S. C. Peck, "Factors Leading to Structural Change in U.S. Oil Refining Industry in the
Postwar Period" in R. Pindyck (ed.), Advances in the Economics of Energy and Resources, Volume I, JAI
Press, December 1977
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S. C. Peck, "A Note Concerning the Effect of Reserve Margins and Regulatory Policy on New
Turbogenerator Size," Bell Journal, Spring 1977
S. C. Peck, "Alternative Investment Models for Firms in the Electric Utilities Industry," Bell Journal, Fall
1974
WORKING PAPERS (currently unpublished)
“Financial Value of EMF Research”, PowerPoint presentation for EPRI, October 2004
“Water Quality Trading Research Strategy: Progress Report”, PowerPoint presentation for EPRI, October
2004
“Strengthening the Foundation for Public Decision Making” (with M. Greenberger), March 2004
“Summary Analysis of McCain Lieberman Bill”, Draft report to NRECA CRN, February 2003
“Managing Urban Sprawl”, December 2003
“An Approach based on Atmospheric Concentrations to Manage the Global Climate Issue”, (with T. J.
Teisberg), December 2003
“Contingent Climate Policy Decision Making; a Framework which places an emphasis on the Vintage
Structure of the Capital Stock”, December 2003
“Building a Keynesian Macroeconometric Model”, November 2003
“Electric Energy and Transmission Markets; A Synthesis of Flow Based Transmission Rights and the
Contract Network Approach”, October, 2003
“Thinking about the Structure of Electricity Markets for the Future”, October 2003
“Comments on EPA Draft Staff Paper on Particulate Matter and on the Particulate Matter Draft Risk
Assessment for Selected Urban Areas”, October 2003
“Value of Information for Elements of a Global Climate Program” (with George Hidy and Tom Teisberg),
PowerPoint presentation, September 2003
“Environmental Argumentation, Stochastic Cost Benefit Analysis and the Precautionary Principle”,
September 2003
“Overshooting and Technical Change”, August 2003
“Adding an Energy Market Component to Terrorism Studies”, PowerPoint report for EPRI, July 2003
“Global Climate; Sources, Issues, Proposed Solutions”, PowerPoint presentation for Salt River Project, July
2003
“Institutional Frameworks to Preserve Biodiversity”, April 2003
“Is it Time to launch the Precautionary Principle for Radio Frequency and Power Frequency Magnetic
Fields?” prepared in response to a World Health Organization Workshop held February 2003
“Shadow Price for Methane, whose Chemical Products are Carbon Dioxide, Tropospheric Ozone and
Stratospheric Water Vapor, all of which have Global Thermal Impacts”, February 2003
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“A Business Perspective on Emissions Trading Schemes for the Pearl River Delta”, (with Gail Kendall and
Samuel Lee), January 2003
“Improving Air Quality in China: A Strategic Stepped Approach”, November 2002
“Transforming Energy Markets – A Component of the EPRI Roadmap”, (with Robert Wilson) August 2002
“Effect of Energy Interruptions in California”, (with Dale Nesbitt, Ted Foran, Bob Entriken, Steve Wan),
PowerPoint presentation prepared for EPRI, May 2002
“Electric, Gas and Water Security following the attack of September 11”, PowerPoint presentation for
client, October 2001
"Optimal Control and Learning Strategies When Environmental Costs are Cumulative", (with H. P. Chao
and T J Teisberg), July 1989
“Market for Emission Allowances: A Risk-based Emission Permit System”, (with H. P. Chao) November
1994
"Risk Aversion: Its Implications for R&D Planning”, (with H.P. Chao and Y. H. Wan), May 1984
"The Effect of Coordination between Electric Utility Companies on the Sizes of New Turbogenerators
Installed, A Proposal for an Empirical Study," January 1976
"A Note on the Statistical Properties of the Cumulative Average Residual", September 1975
"The Consumer's Demand for Goods, Assets and Durables," September, 1970
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Figure 1 National Electric Issues
H.P. Chao, B.R. Judd, P.A. Morris, S.C. Peck, Analyzing Complex Decisions for Electric
Utilities, Long Range Planning, 18, 2, 46-56, 1985
Decisions in
the 1980’s
National, state,
utility
Industry
structure
Nuclear
regulations
Uncertainties
of the 1980’s
Decisions in
the 1990’s
Uncertainties
of the 1990’s
Outcomes
Fuel supply
National, state,
utility
Repeat
Repeat
Utility
Regional
Feasibility,
performance
and cost of
utility capacity
National
International
Utility capacity
Rate level
Rate structure
Research
emphasis
Utility business
environment
Determinants of
electricity
demand growth
Effects of
electricity
growth
Figure 2. Issues related to financial plight of utilities
Chao, Judd, Morris, Peck
Decisions
Industry
Regional systems
Project corporations
Deregulation
Rate level
Return on rate base
Items included in rate base
Inflation accounting
Automatic adjustment clause
Indexed bonds
Uncertainties
Cost of utility capacity
Utility business environment
Inflation
Ease of financing
Electricity demand growth
Economic growth
Electricity price level
Outcomes
Utility level
Investor
Customer
Regional level
Economic
Environmental
National level
GNP
Security
Utility capacity
Generation
Transmission & distribution
Load management &
conservation
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Figure 3 Decision tree for financial plight
Decision - state
Uncertainties
Financing
Demand
Chao, Judd, Morris, Peck
Outcomes
Customer
Owner
Decision -utility
High
Hard
Build
Rate case
Low
No Build
Easy
Figure 4
Expected consequences
Chao, Judd, Morris, Peck
Rate case
Status quo
Easier regulation
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Short term
Customer:
Investor:
Surplus -shortage
Market to book
108
107
0.92
1.01
19
Long term
Customer
Investor
246
370
0.62
1.02
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Figure 5. Reversing order of regulatory determination & investment gives rise to
“Hostage Problem”
H.P. Chao, R.J. Gilbert, S.C. Peck, Investing under regulatory uncertainty: what to do
when the rules (may) change, Energy Systems and Policy, 9, 4, 385-395, 1986
Utility decision Regulatory
outcome
Coal fired
High rate of
plant
return
Low rate of
return
Gas fired
High rate of
plant
return
Low rate of
return
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Assumed
social ranking
1
2
20
Investor M/B
ranking
1
Customer
ranking
2
4
1
2
4
3
3
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Table 1. Functional characteristics of an electricity system
Years ahead of dispatch hour
Investment in
Investment in
Investment in
Investment in end
generation
transmission grid
distribution system
use equipment
Months ahead of dispatch hour
Coordinate maintenance
Coordinate maintenance
Reduce likelihood of
and commitment of
and commitment of
emergencies
generation
transmission
Hour of dispatch
Dispatch
Handle
Price of
Price of
Price of
generation of
emergencies
generation
Transmission
distribution
real & reactive
power
Table 2: Alternative Structural Alternatives for Electricity Production and Use
Organization of
Organization of transmission
Organization of
Political
generation
distribution
control of
retail prices
Monopoly
No
Yes
Generation
Independent transmission
No retail choice No
competition
company
Yes
Retail choice
No
Strong
No retail choice No
Regional
control of
transmission
Yes
forward and
organization
Retail choice
No
spot market
Weak control No retail choice No
of forward
Yes
and spot
Retail choice
No
markets
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Table 3 Comparison of electricity industry structural alternatives across a range of goals
RTO with weak
Monopoly
Independent
control of forward
transmission
and spot markets
company
Investment in
Generation
Strong ITC has ability
to expand grid to
relieve bottlenecks
(10)
Distribution
grid
Effectively regulated
monopoly distribution
company may provide
the range of products
and prices appropriate
(10)
With no retail control
of prices, incentives
for conservations and
peak load shaving are
sufficient (10)
Indicative planning by
ITC may lead to
coordinated
maintenance (5)
ITC is charged for
service interruptions
and thus has incentive
to maintain
transmission system to
minimize likelihood of
major disruptions (10)
ITC has incentive and
capability to install
capacity and systems
to avoid disruptions in
transmission system
but not in whole
vertical chain (5)
Forward market in real
and reactive power
and transmission
should handle most of
dispatch. ITC takes
over for the hour
before and hour of
dispatch and issues
instructions to
generators & users
(10)
ITC empowered to
order gens/ discos to
change o/p (5)
Generation
Transmission
With no retail control
of prices, incentives
for conservations and
peak load shaving are
sufficient (10)
Monopoly is charged
for service
interruptions and has
incentive and ability to
optimize for
generation,
transmission and
distribution. (10)
Reduce
likelihood of
emergencies
Monopoly is charged
for service
interruptions and has
incentive and ability to
take appropriate action
in emergency (10)
Generation
dispatch of real
and reactive
power
Decisions internal to
monopoly are likely to
lead to most effective
generation dispatch
(10)
Handle
emergencies
Monopoly is likely to
handle emergencies
effectively (10)
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Risk of cobweb like
investment behavior
moderated by
indicative planning by
ITC (5)
Transmission
grid
End use
equipment
Coordinate
maintenance
and
commitment of
Monopoly has
incentive and ability to
optimize mix of G,T,D
(10)
22
Appearance of
cobweb like
investment behavior
exacerbated by
unknown ability to
move power to market
(0)
Weak RTO may be
captured by strong
generators or
distributors with
positions to defend (0)
Effectively regulated
monopoly distribution
company may provide
the range of products
and prices appropriate
(10)
With no retail control
of prices, incentives
for conservations and
peak load shaving are
sufficient (10)
Risk of uncoordinated
maintenance (0)
Effective maintenance
and commitment is
less likely (0)
Effective investments
to prepare for
emergency less likely
(0)
With weaker forward
markets and weaker
RTO, generation
dispatch is likely to be
less effective (0)
With weaker control,
emergency reaction
likely less strong (0)
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Cost of
generation
These prices could be
higher than costs due
to the difficulty of
regulation (0/0/10)
Price of
transmission
Price of
distribution
Other issues
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US electricity would
be provided by a few
large vertically
integrated companies
created by mergers.
Price regulation would
be needed. Issues of
innovation would
become important
again. Political
control of retail prices
possible.
23
With effective
competition prices
could be lower (10)
With appropriate
regulation prices could
be lower; need to
coordinate many
transactions by market
mechanism could
drive prices higher (5)
Effective regulation
assumed (10)
Formation of ITC
means purchase of all
transmission assets
over a large region.
With effective
competition, prices
could be lower ;
ineffectively
organized markets
could drive prices
higher (0)
With weaker
regulation prices could
be higher; ineffective
coordination by
market mechanisms
could drive prices
higher (0)
Effective regulation
assumed (10)
Control by weak RTO
of available
transmission capacity
has potential to change
profit and hence
capital value of
existing generation &
distribution assets
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Figure 64
Comparsion of monopoly and de-integration
12
10
8
Monopoly
ITC
RTO
6
4
2
n
ns
m
is
si
Pr
on
ic
e
D
is
tri
bu
tio
n
at
io
Tr
a
Pr
ic
e
ge
nc
y
os
tG
en
er
C
of
an
dl
e
H
di
sp
at
ch
em
er
po
w
er
ge
nc
y
em
er
R
G
en
/
lik
el
y
n
d
Tr
a
ns
m
ss
io
n
tio
en
er
a
oo
r
C
ed
uc
e
us
e
C
oo
r
d.
G
n
v.
En
d
In
bu
tio
v.
D
is
tri
In
ns
m
v.
Tr
a
In
In
v
.G
en
e
ra
tio
is
si
on
n
0
4
In constructing this figure, I altered scores of policies on an attribute so that there would be no visual
overlap. Essentially then scores of 10, 9, 8 should be interpreted as 10 and scores of 0 and 1 should be
interpreted as 0
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