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Implementing Transmission Access: Getting the Genie Out of the Bottle(neck)

Fortnightly Magazine - May 1 1995

implementation to operationally constrained alternatives, power sources could buy in to the plan without necessarily disclosing sensitive information in advance.

And what about transmission capacity trading?

Sanction of marketable ownership rights in electric transmission would also provide a useful adjunct to collaborative planning (em especially when the power source's plans change, creating a need to sell the rights. However, existing jurisdictional issues might become a cause for concern, particularly with respect to entire transmission lines. Thus a path of lower resistance (so to speak) might start out by allowing any firms to invest in FACTS (flexible A-C transmission systems) devices. FACTS, a relatively new technology, involves placing discrete controllable elements at key locations to improve various aspects of the grid's power-carrying capabilities. In the usual case, no new line construction is required.

Financial Instruments

Futures? Options? Swaps? Some are in limited use now, but much more activity looms over the horizon. The key here lies in emphasizing the special technical properties of electric power in contrast to those of other commodities (em some of which exhibit tantalizingly similar, yet different, characteristics. However, analogies between electricity and gas, or whatever, don't matter. Simply identify and retain the necessary linkage between paper contracts (em for power or money (em and physical electrons in wires.

If no "delivery" is ever required by the structure of the financial instrument, then any affected parties should be concerned primarily with evaluating the mathematical correctness and related risk factors of the deal. Of course, it might seem logical that a deal's potential power deliverability should always remain at least conceptually possible (em if not a contractual requirement. However, in an industry that still sanctions fictitious "contract path" wheeling arrangements it remains, by extension, plausible to let the mind float free and imagine a world wherein physical delivery might be completely disconnected from financial payoffs.

Nevertheless, let's discuss situations in which the parties have evidently assumed that physical delivery is desirable (em if not a necessary precursor to financial viability and liquidity. From a technical standpoint, this condition shouldn't cause any problems (em in deployment patterns

of existing generation or

transmission (em as long as more parties haven't subscribed to a delivery situation than can happen in real-time. Frequent monitoring of historical and actual system conditions, coupled with judicious forecasting over the time horizon of interest, should serve to compare actual possibilities to amounts specified in financial instruments (em and then limit subscriptions if necessary.

In addition, markets may demand definition and use of some financial instruments dealing with power deliveries projected to be large enough, and far enough out in future time, that power system expansion might be needed and feasible. In such cases, mechanisms will probably have to be developed to solicit enough input from players to identify specific characteristics of generation and transmission needed to allow for prospective delivery (and determine related costs).

Other considerations may apply (em both for short- and long-term financial instruments. For example, even though some "delivery" locations may be physically realizable, redispatch and wheeling changes necessary to bring about proper amounts and