Instead, let the ISO accept more imaginative bids for redispatch
IN THE TWO YEARS FROM MID-1994 TO MID-1996, CALIFORNIA undertook an intensive and acrimonious debate on how to set up its new competitive electricity market. The main issue was how much to centralize market decisions. Those favoring a relatively large role for an independent system operator emphasized efficiency and safe operation of the power system. Those favoring a relatively small role for the ISO wanted maximum freedom for market participants to strike power deals.
In the end, the debate went to the power marketers and large industrial consumers, who suspected that a strong ISO might simply perpetuate the monopoly power of the incumbent utilities. The deal they struck (which became ensconced in law in Assembly Bill 1890) was as follows: First, the power marketers and industrials got the weak ISO that they wanted. Second, the incumbent utilities were guaranteed recovery of their stranded costs. Third, environmentalists got many hundreds of millions of dollars for energy conservation. In exchange, however, California will be stuck for many years with a market that is very expensive to administer and that gets prices wrong.
Using a simple numerical example - with a clearly correct answer - this article will explain how the California market sets the wrong prices for grid congestion, leading not only to faulty transmission prices but also wrong prices for electric energy. The bottom line is that California's transmission pricing makes it needlessly difficult for its ISO to relieve congestion and makes consumer prices needlessly high.
Dealing With Congestion:
An Efficient Model