You might have thought the Feds closed the book on any broad, region-wide sharing of sunk transmission costs—especially after FERC ruled last spring in Opinion No. 494 that PJM could stick with...
PoolCo vs. Bilateral Markets?
Vikram S. Budhraja
Vice President of Planning and Technology
Southern California Edison Co.
The transition to a competitive generation marketplace is underway. Customers want choices, flexibility, and competitive prices. Producers want open nondiscriminatory access to markets. Regulators want a smooth transition to the new system based on competitive efficiency, not cost-avoidance or cost-shifting among customer groups. And policymakers want a system that protects consumers without sacrificing environmental and energy policy objectives.
In the restructuring debate, our company has proposed formation of a regional power pool (em PoolCo (em as the fastest and straightest path to a fully competitive energy marketplace, in which all customers will enjoy the benefits of greater choice and competition. PoolCo separates financial transactions from power system operations. Financial transactions are handled through individual (em and confidential (em bilateral contracts that are unregulated, while the essential functions of control, coordination, regulation, and dispatch of the power system are performed by an independent regional PoolCo.
PoolCo will be an independent company (em unaffiliated with utilities or suppliers (em dispatching, but not owning, all generation and transmission across a regional grid. PoolCo assures economic bid-based dispatch and load balancing, and settles discrepancies between contracts and actual performance based on visible hourly spot prices. PoolCo focuses on operating efficiency (em not contract disputes or cost-shifting, which has been the industry experience in using bilateral wheeling contracts. Separating decision control from asset ownership facilitates participation by all types of regional utilities. Each electric system that has implemented a competitive market system (em Norway, the United Kingdom, New Zealand, and others (em relies on a pool or common system operator. The names may be different, but the functions are the same.
With PoolCo, regulators would focus on policy issues such as jurisdiction and cost recovery for environmental, social, and legislative initiatives. Under the bilateral model, regulators would referee cost allocation, cost-shifting, and comparability of service issues in thousands of complex proceedings. Moreover, the bilateral-only contract model is based on the mistaken premise that power flowing through an transmission network can be separately identified as to source and customer. In reality, all producers deliver power into the power grid; all customers take power out of the grid. And these deliveries must be exactly matched at all times to maintain reliability and power quality, because power cannot be stored within the grid.
Electric systems are different from gas systems, to which they are often compared, because gas can be stored. While it takes three days for a gas molecule to travel from Texas to California, an electron would make the same journey in less than eight milliseconds (em traveling from Texas to California 32 million times for each gas molecule trip.
We strongly favor creation of a PoolCo that will allow our industry to make an orderly, efficient, and reliable transition to unregulated competition. Rather than years of trying to create a web of bilateral power contracts, PoolCo will quickly give us an effective mechanism to move immediately into a fully competitive and open electric power market that will bring the benefits of choice, competitive prices,