Econonomics of Energy and Environmental Policy

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A regulatory framework for an evolving electricity sector: Highlights of the MIT utility of the future study

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The electric power sector is once again evolving. A variety of distributed energy resources and improving computation, communication, and control technologies create an unprecedented degree of choice for electricity consumers, choices that are poorly guided by electricity rates and other incentives designed for a comparatively simpler era. These technologies also create new tools for regulated utilities, competitive suppliers, and other businesses to employ in the provision of electricity services. This paper summarizes the findings of a two-year, multidisciplinary MIT Energy Initiative research effort, the Utility of the Future study, and outlines a framework for proactive electricity regulation, market, and policy reform designed to enable the efficient evolution of the power sector over the next decade and beyond. Recommendations include a comprehensive system of efficient prices and charges for all electricity users, enhanced regulation of distribution utilities, careful reconsideration of industry structure to avoid conflicts of interest, and improvements to electricity markets. Together, this framework is intended to establish a level playing field for the provision and consumption of electricity services and enable the integration of a cost-effective combination of centralized generation, conventional network assets, and emerging distributed resources, whatever that mix may be.
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JEL Codes:L94: Electric Utilities, L51: Economics of Regulation, Q41: Energy: Demand and Supply; Prices

Keywords: Regulatory Economics, Network Regulation, Electricity Rate Design, Electricity Market Design, Distributed Energy Resources

DOI: 10.5547/2160-5890.6.1.iper

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Published in Volume 6, Number 1 of The Quarterly Journal of the IAEE's Energy Economics Education Foundation.


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