Using Hourly System Lambda to Gauge Bulk-power Prices

Fortnightly Magazine - May 1 1995
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The electric power industry lies in the midst of major change, including a shift to market-based wholesale prices. Market players and regulators will recognize that competition requires a shift in thinking on key issues such as resource planning before the market is developed enough to provide adequate price information. It is during this interim period that newly available hourly system lambda information could prove useful.

The outlines of the future wholesale power market are becoming increasingly clear. The market will probably resemble other commodity markets. Suppliers and buyers will engage in price discovery and a mix of short- and long-term transactions. As the markets develop, market-price hedging mechanisms such as futures contracts may emerge and even become commonplace.

This final outcome will likely occur only after years of debate and experimentation. Currently, market participants, regulators, and others are debating key structural issues. These debates cover system operations, reliability, market making, and transmission issues. For example, in the California restructuring debate, "PoolCo" and "NetCor" conceptual frameworks are being debated. In many other states, regulatory agencies are initiating review of retail wheeling, stranded assets, and other aspects of deregulation.

And these debates won't occur in a vacuum. As they continue, utilities will downsize, merge, write off assets, and search for ways to cut operating costs. Wholesale and retail customers will continue to look for cheaper suppliers for their existing loads. Power marketers will work to shape commercial arrangements to their vision of a full-fledged electric commodity market.

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