The Federal Energy Regulatory Commission (FERC) has agreed to set a hearing on the reasonableness of American Electric Power Co.'s (AEP) nonfirm, offpeak hourly rate for electric transmission...
Exploiting the Random Nature of Transmission Capacity
two transactions are treated identically, transaction B will be curtailed with the same probability, though usually not at the same time as A.
PROBABILISTIC MODELING. On the other hand, suppose that the TSP offers service to all three contenders, accepting bids for priority of service. Suppose that A outbids B and C for highest priority service, paying $2.50/kW per month, and that B outbids C for the second highest, paying $0.83/kW per month. C pays $0.50/kW per month for the most interruptible service. A and B pay a total of $6 million per year, while C pays $900,000 annually, increasing transmission revenues by 15 percent.
How reliable is the service? Transaction A is interrupted only if ATC drops below 150 MW (probability 0.05) while A is active (probability 0.7), so A will be interrupted only 3.5 percent of the time - a big improvement from the deterministic 9.63 percent.
Transaction B, on the other hand, is interrupted if it is active when ATC drops below 150 MW (probability 0.035) or if both A and B are active when ATC is between 150 MW and 300 MW (probability 0.1225, or 0.25 5 0.49), for a total probability of interruption of 0.1575. This is considerably worse than the deterministic 0.0963 - but B is paying less, too.
Transaction C is interrupted with probability 0.4. This seems counterintuitive, as there is only a 10 percent probability that transmission capability is as much as 3 5 150 MW = 450 MW. But with each of the transactions active only 70 percent of the time, C often can use capacity earmarked for A or B, even when transmission capability is less than 450 MW.
In summary, A gets more reliable service, B gets less reliable service (but pays less), and C gets service where he would have got none. TSP makes more money than before; the mechanics of what happens to this money, in the context of a regulated monopoly, is beyond the scope of this paper. Presumably it will be returned in the form of lower rates.
REDISPATCH DURING CONGESTION. In reality, all three may be able to get more reliable service than computed above. When the TSP discovers it has insufficient transmission capability to accommodate everyone, it may have other options than simply curtailing C, B, and A. It may be able to redispatch (if it owns its own plants) or to negotiate a redispatch by third parties. The cost for doing this would be borne by the transactions (C, B, or A) benefiting from the situation. If the redispatch costs are too high for C, B, and A, then curtailing rather than redispatching is clearly the right thing to do.
Of course, A, B, and C can make their own projections of the probability of congestion, and of the redispatch costs should congestion occur. This will affect the amount they are willing to bid for transmission service.
TRANSMISSION SYSTEM PLANNING. This process gives useful information to the transmission planner. In the example above, it is worth slightly less than $20/kW per year ($3 million