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Calling EPACT's Bluff

How Congress opened another can of worms with its call for regional joint boards to study power-plant dispatch.

Fortnightly Magazine - July 2006

there are some people who think the question has been asked and answered, but ... I think it’s really important not to use this vehicle as a chance to revisit everything we now would like to revisit.

“That is not to say that we shouldn’t always be challenging what we do, but ... this could get hijacked and have no meaning at the end.”

But from where will meaning come, if not from a hijacking?

Dispatch in Practice

The RTOs and others that operate regional markets have submitted data to the various joint boards to defend the performance of their dispatch regimes.

For example, ISO New England notes that in the five years following the opening of its wholesale market in 1999, regional generating capacity rose by 40 percent. Similarly, it claims that wholesale power prices in New England, adjusted for fuel costs, have declined by 5.7 percent since the first full year of market operations, with prices having dropped by 11 percent in the years 2001-2004. The New York ISO estimates a 5 percent decline in average monthly costs from 2000-2004, on a fuel-adjusted basis. (See, Study and Recommendations, Joint Board on Economic Dispatch for the Northeast Region, pp. 6-7, FERC Docket AD05-13, filed May 24, 2005.)

A market-monitoring report made part of PJM’s 2005 State of the Market Report suggests that the initiation of market operations has produced a significant decrease in the forced outage rate, most apparently from 1996 to 2001, when it fell from about 12 percent to below 5 percent. In remarks offered at an initial meeting of the PJM/MISO region joint board, held Nov. 21, 2005, testimony indicated that bilateral transactions had “shrunk considerably” following the start of day-ahead and real-time markets run by MISO. (See, Joint Board for PJM/MISO Region, Report on Security Constrained Economic Dispatch, pp. 15, 21, FERC Docket No. AD05-13, filed May 25, 2006.)

Note also that while the West Region report favors a laissez-faire role for FERC, allowing full regional flexibility to adopt dispatch models that don’t conform to RTO practice, one member of the West board, Texas PUC Commissioner Barry Smitherman, took pains to issue a separate statement documenting the success of ERCOT’s market-based dispatch regime, declaring that the West region could benefit from greater market transparency with a more coordinated dispatch regime.

According to Smitherman, the Texas experience in ERCOT, where 10 control areas were combined into one, has shown “dramatic evidence” of operational benefits by moving to a regional dispatch under an independent grid operator:

• Lower Heat Rates. ERCOT market heat rate drops 42 percent, from 14,200 MMBtu/kWh to 8,500 MMBtu/kWh, between 1999 and 2005, leading to reduced consumption of natural gas;

• Capacity Additions. Some 26 GW of new gen capacity added to the ERCOT between 1999 and 2005;

• Retirement of Obsolete Units. Mothballing or permanent retirement of over 8,000 MW of old, inefficient gas-fired generation, previously operated by vertically integrated utilities, that now can never qualify as “in the money,” given the fall in heat rates noted above. (See, Separate Statement of Barry T.