Playing the Pool: Can Everybody Win?

Fortnightly Magazine - March 1 1996
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As electric restructuring spreads around the nation and the world, the idea of a "PoolCo" spot market (pool) gains credence. Pools already exist in England, Australia, Norway, Alberta, and Argentina. On December 20,1 the California Public Utilities Commission formally proposed a pool, called the California Power Exchange, to begin operation as of January 1, 1998. Still, questions remain.

Can a pool adequately compensate all the generators that the market needs, or provide correct price signals for market entry? To some, this question may appear trivial. After all, generators can raise prices until they receive adequate compensation, and new generators will come in if prices are high enough.

If a pool works as intended, generators will have an incentive to bid their short-run variable costs. That assumption is made here (em that generators will in fact bid at short-run variable cost. From there, examples test whether a pool can provide an adequate power supply, compensate generators fairly, and give correct signals for adding new capacity.

Bidding and Dispatch

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