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Let's Get Physical

To manage congestion on the power grid, most traders would rather book a firm path than risk a loss on a financial hedge.

Fortnightly Magazine - January 15 2001

without allowing congestion management to drive the transmission sector.

In a white paper issued in November, "Congestion Pricing Issues in RTO Filings," Dynegy's Daniel King, Mary J. Doyle, and Edward A. Ross argue in essence that congestion doesn't really matter, when you compare the costs involved with the billions being won and lost in California's generation market. "To understand this," they say, just compare congestion costs with energy costs.

"The total congestion costs in PJM, in 1999 were $65 million," say King, Doyle, and Ross. "This represents about 1 percent of the total energy market in PJM, and only 0.3 percent of retail electricity sales in PJM (including T&D costs.) Of this, the potential socialized costs would be on the order of 0.12 percent of energy demand value and 0.03 percent of retail electricity sales in PJM.

"Similarly low levels of congestion occur in California. During the past 12 months [ending October 2000] total congestion costs in California were just $211 million in a $26 billion market."

Dynegy concedes that a "market driven" scheme could aid the market. "Or," it adds, "it could mean that a congestion management system is created to be a market. These are two very different paradigms."


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