Will competition hurt electricity consumers in the Pacific Northwest?

A computer model was developed at Oak Ridge National Laboratory to analyze the electricity production, costs, and prices for two geographical regions for a single year. Bulk-power trading is allowed between the two regions and market clearing prices are determined based on marginal costs. We used this model, ORCED, to evaluate the market price of power over the year 2000 in the Pacific Northwest and California. We found that, absent intervention by the regulators in the Northwest, generation prices would increase 1.1 c/kWh on average, from 1.91c/KWh for the regulated price to 3.02c/kWh as the competitive price. If regulators use transition charges and price caps, then customers in the Pacific Northwest need not be penalized by the change to marginal-cost pricing. Customer responses to price changes will increase the transfer of power between regions. A gas price increase of 20%, while only raising the average-cost-based price to 1.95c/kWh, raised the marginal-cost-based price to 3.56c/kWh. Reductions in hydroelectric resources also dramatically change the price and flow of power.