Public Utilities Reports

PUR Guide 2012 Fully Updated Version

Available NOW!
PUR Guide

This comprehensive self-study certification course is designed to teach the novice or pro everything they need to understand and succeed in every phase of the public utilities business.

Order Now

The Power Market: E-Commerce for All Electricity Products

Fortnightly Magazine - February 1 2000

requires extensive regulatory oversight. Transmission congestion prices and energy prices that are calculated through auction and dispatch by a pool RTO are highly volatile and arbitrary. In California, for example, an importer of electricity can be charged hundreds of dollars per megawatt-hour in congestion costs on a $30 per megawatt-hour energy sale and not know of the charge until after the deal is done.

In an attempt to protect participants from the risks of pool-calculated prices, pool RTOs have developed financial instruments called contracts-for-differences, which are settled against their after-the-fact auction prices. These contracts are complex. They can hedge risks only part way, because of differences in the products traded. By contrast, forward, physical markets that operate seamlessly via the Internet, from real-time to years ahead, will allow full hedging of risks.

Pool-based RTOs are expensive to implement and operate. A pool RTO usually combines, at great cost, several existing control areas to more easily apply central optimization methods. An RTO that relies on e-commerce markets to coordinate the existing multiple control areas and transmission operators should prove less expensive. Control areas can be combined when justified by operational savings, and an RTO based on e-commerce is easily interfaced with one or more independent transmission companies, or ITCs.

The facts demonstrate the high costs of pool RTOs. California has spent more than $700 million dollars to build and operate the California ISO and California Power Exchange over the last two years. This expense has added more than 5 percent to the cost of wholesale power. Only about one-third of the California ISO's costs are for control area operations that will be performed by an RTO based on e-commerce. (See The California ISO, "Analytical Support for California ISO Grid Management Charge," April 1999, p.6.) The remaining California ISO functions (scheduling, congestion management, market operations, and settlements, billing and metering), and all functions of the California PX, could be moved from the RTO to the market.

Flow-Based Scheduling: A

Market-Friendly Dispatch

Where pool-based RTOs have not yet formed, electric transmission is arranged on a "contract path" basis, which maintains the fiction that electric power flows on a preselected path. Electric power actually flows according to the laws of physics over all possible paths. The power that is transmitted under a contract path reservation system may be limited by transmission constraints at interfaces called "flowgates" on other paths. (See sidebar, "Flow-Based Scheduling: The Math is Easy.") In the Western United States, a "cutplane" is similar to a flowgate.

The North American Electric Reliability Council (NERC) has developed transmission loading relief (TLR) procedures to curtail schedules on contract paths that contribute to violations of flowgate limits. Such systems were greatly stressed in the past two summers as reserve margins declined and the role of power trading increased.

Fortunately, a straightforward solution is to require market participants to buy and pay for capacity on the flowgates where their energy actually flows. Then curtailment of flows due to parallel path flows is unnecessary, except in emergencies. NERC has been working toward flow-based reservation systems for several years, and