Initiative to study Pennsylvania electricity markets and economics

Initiative to study Pennsylvania electricity markets and economics

University Park, Pa. -- Producers, distributors and regulators have joined with Penn State to form the Penn State Electricity Economics Initiative, a cooperative project to investigate possibilities and challenges surrounding electricity restructuring in the Commonwealth.

Six Pennsylvania electricity companies -- Constellation, Direct Energy, Exelon, FirstEnergy, PPL and RRI have signed agreements with Penn State to support the initiative for two years. Also part of the project, but not paying members, will be the Pennsylvania Public Service Commission and PJM, the regional electricity grid operator. The initiative will be run through the College of Earth and Mineral Sciences Energy Institute. The institute's advisory board will review proposals for research on electrical marketing and economics.

"General deregulation of the electric industry in Pennsylvania began about 12 years ago," said Andrew Kleit, professor of energy and environmental economics. "We are finally reaching the culmination of the process."

The price freeze on electricity is ending, and companies are beginning to market electricity directly to the consumer. The initiative hopes to explore market questions such as "How effective is retailing, and who is choosing to switch supplier?"

"Pennsylvania will soon require that 20 percent of the electricity produced in the state be green energy," said Kleit. "In Pennsylvania, green energy is wind energy."

Kleit notes that currently Pennsylvania consumers pay a flat rate for electricity regardless of when it is used. Other states are already trying out the "smart grid" technology that allows rates to fluctuate with supply and demand.

"Shifting dishwashing, water heating and laundry from daytime to nighttime puts less strain on the grid," says Kleit. "Using electricity at off-peak hours will also reduce costs."

The initiative wants to explore a range of questions about marketing electricity, electrical sources, green energy, energy pricing and electric distribution.

"Each generation source -- coal, wind, hydroelectric or nuclear -- has its own issues and tradeoffs," said Kleit. For example, potential projects may consider the intermittence of wind energy production and the difficulties in storing electricity.

Other Penn State faculty who are part of the initiative include Seth A. Blumsack, assistant professor of energy policy and economics; R.J. Briggs, assistant professor of energy and environmental economics; Zhen Lei, assistant professor of energy and environmental economics; and George Young, professor of meteorology. Affiliated scholars include Karen Fisher-Vanden, associate professor of environmental and resource economics; Jeff Mayer, associate professor of electrical engineering; and Mark Roberts, professor of economics.