[BETA] Fortnightly

AFTER MUCH DISCUSSION AND INNOVATION, CALIFORNIA is scheduled to launch its new electricity market (known as WEPEX) on Jan. 1, 1998, and we have a chance to revisit the issues. In the earlier round of this conversation, now three years past, I argued that the debate contrasting pool and bilateral models for a restructured electricity market was missing the point. %n1%n

I had thought the pool versus bilateral debate would be over by now; having both would have solved it. Yet the dispute lingers on in the somewhat schizophrenic provisions of the WEPEX proposals that solicit bids from the market participants, but then impose unnecessary constraints on the system operator's use of the bid information and obstruct operation of the pool with its least-cost economic dispatch. To be sure, there is much to praise about the WEPEX innovations. We all would benefit from a success in this major restructuring effort. If WEPEX is a take-it-or-leave-it proposition, taking it would be better. However, the public would prove well-served if the WEPEX independent system operator excised some of the most contorted logic it inherited and simplified the rules to support both pool and bilateral transactions.

Just Say "Yes"

The point made three years ago and still applicable today, is that the electricity market cannot operate at all - much less efficiently - without a system operator. Since we cannot rely solely on decentralized, bilateral transactions to match supply and demand, the real issue is reduced to establishing the role and responsibilities of the system operator in performing its functions in support of a competitive generation market. Recognizing that the system operator must offer a balancing and dispatch service, I summarized key matters in dispute then with three questions that are still relevant:

(1) Should the system operator be allowed to offer an economic dispatch service for some plants? (2) Should generators and customers be allowed to participate in the economic dispatch offered by the system operator? (3) Should the system operator apply marginal cost prices for power provided through the dispatch?

The recommended response was to "just say yes" to all three questions. In this case, the system operator would provide the necessary balancing as an efficient dispatch open to anyone who wished to participate. Pricing would apply the marginal cost principles of a competitive market based on the voluntary bids of the participants. And these same prices would apply to all uses of the transmission grid under a comparable, open-access transmission tariff. Bilateral contracts would be fully available. With this voluntary approach, the models merge, or differ only in accounting practices. By now the full details of such a package can be found in the filings of the "supporting companies" in the Pennsylvania-New Jersey-Maryland Interconnection or the New York Power Pool, both having elected to "just say yes."

The Federal Energy Regulatory Commission has declared itself in support of the same approach in its earlier "guidance" to WEPEX:

¼the companies have clarified that, under their proposal, the ISO can accept voluntary information from all generators and loads in order to relieve transmission congestion