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Stanford Report, May 6, 1998

Challenges in competitive elect. markets: 4/98

Panel expects three challenges for competitive electricity markets

Deregulating the electricity industry could reduce overall costs, but only if policymakers ensure that a few large firms do not control prices in the new markets, says a group of leading energy analysts in a new report.

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The report, issued May 6 by the Stanford-based Energy Modeling Forum, is intended to advise legislators and others involved in creating new rules for electricity markets in various states, regions and countries. The 50-member group focused on the potential impact of regulatory changes that would affect how electricity is produced and transmitted to final customers. Discussion emphasized three key problems: control of market prices by industry participants, making transmission capacity more available and the environmental pollutants that are released by fossil fuels used for electricity generation.

The report warns that the rules should take into account that:

The conclusions are the result of 18 months of work by members of the Energy Modeling Forum, a group of energy analysts and advisers from academia, government and the energy industry who use computer models to understand important energy and environmental problems. Rather than trying to predict what future prices will be, the group used models to help them anticipate potential problems that may arise in the restructuring process.

"None of these problems are insurmountable, but they do need to be addressed in designing competitive markets," said Hillard Huntington, executive director of the forum. SR