Contrasts in restructuring wholesale electric markets: England/Wales, California, and the PJM

Electricity Journal

Volumn 11, Issue 7, 1998, Pages 24-42

  Henney, Alex ^a  

^a NONE

Author keywords

[No Author keywords available]

Indexed keywords

CALIFORNIA; ENGLAND; PUBLIC AUTHORITIES; RE REGULATIONS; WHOLESALE ELECTRIC MARKETS;

COMMERCE;

EID: 0032135861     PISSN: 10406190     EISSN: None     Source Type: Journal    
DOI: 10.1016/S1040-6190(98)00074-8     Document Type: Article

References (33)

1. 1. Although the article focuses on the wholesale market, this section mentions retail access to highlight the importance of public leadership.
2. 2. What happened is described in my article, Competition, Confusion, and Chaos: The Metering Muddle, PUBLIC UTILITIES FORTNIGHTLY, Nov. 1, 1996.
3. 3. Orders Instituting Rulemaking and Investigation on the Commission's Proposed Policies Governing Restructuring California's Electric Services Industry and Reforming Regulation, R.94-04-031; 1.94-04-032, THE PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA, April 20, 1994.
4. 4. Mid-Atlantic Utilities Announce Proposed Restructuring Plan, News release - PJM Interconnection, November 30, 1995.
5. 5. The filing by the Supporting Companies in August 1996 stated that it was a "wholesale model", and did not purport to support retail access.
6. 6. With restructuring of risks, most nuclear plants were subsequently privatized in 1996.
7. 7. The process is described in my book, A STUDY OF THE PRIVATISATION OF THE ELECTRICITY SUPPLY INDUSTRY IN ENGLAND & WALES, EEE Ltd., 1994.
8. 8. Unpublished note, Nov. 4, 1996.
9. 9. Order Conditionally Accepting Open Access Transmission Tariff and Power Pool Agreements, conditionally authorizing establishment of an independent system operator and disposition of control over jurisdictional facilities, and denying rehearings, Federal Energy Regulatory Commission, Docket Nos. ER96-2668-000 and EC96-29-0002, November 25, 1996.
10. 10. REPORT ON POOL PRICE INCREASES IN WINTER 1997/98, (OFFICE OF ELECTRICITY REGULATION [OFFER], June 1998).
11. 11. My article, Lessons for the US? Transmission Pricing, Constraints and Gaming in England & Wales, ELEC. J., Jan./Feb. 1997, showed how breaking the market in England and Wales into zones could both create zonal monopolies, which could manufacture gameable constraints, and could result in very thin zonal markets with erratic price movements.
12. 12. Electricity Forward Agreements are 4-hour swaps of 1 MW across 5 weekdays or across 2-day weekends.
13. 13. In contrast, the Scandinavian electricity market, with a physical turnover similar to that in England and Wales has a futures exchange, there was a liquid over-the-counter secondary market in financial contracts of about 250 TWh in 1997, and there is an active group of traders and brokers.
14. 14. Gensets were paid their bid prices when constrained-on and their lost profit when constrained-off based on the premise that they were entitled to firm access to the grid. Note that the British definition of constraint costs is different from that of the PJM and results in much higher numbers.
15. 15. Review of the Electricity Trading Arrangements: Proposals, (OFFER, July 1998).
16. 16. There is also discriminatory use of the transmission system to protect related generation. This is the easiest type to resolve, and is mitigated by the provisions required by FERC Order 888.
17. 17. Must-Run Generation: Can We Mix Regulation and Competition Successfully? John L. Jurwitz and Robin J. Walther, Elec. J., December 1997.
18. 18. Steven Stoft, What Should A Power Marketer Want?, ELEC. J., June 1997.
19. 19. The process for handling constraints is as follows. First, regions within which congestion rarely occurs were defined as pricing zones, and paths between pricing zones that historically became congested were identified. When scheduling coordinators submit their schedules, they identify the pricing zone(s) in which they are injecting power and the pricing zone from which they are withdrawing power. After all the schedules for the next day are submitted to the ISO, it examines the simultaneous feasibility of honoring all the schedule requests. If there is sufficient transmission capacity to handle all the schedules, they are accepted; if, however, the total requests are greater than the path capability, then the ISO moves to congestion protocols. It advises the market participants of the congestion and allows the scheduling coordinators the opportunity to modify their schedules and resubmit. If congestion is still present, it uses adjustment bids in the form of a price willingness to move a generator up or down in each zone, to determine an implicit willingness to pay for the right to move a quantity of scheduled power across the congested interface. For instance, if a scheduling coordinator is moving power from zone A to zone B and the interface is congested and is willing to reduce generation in zone A at a price no higher than $15 per MWh, and to increase generation in zone B at a price not less than $20 per MWh, then it is implicitly bidding up to $5 per MWh to stay on the path. The ISO allocates the capacity available over the congested interface first to the scheduling coordinator with the highest willingness to pay, then to the second highest, and so on, until the path is fully subscribed. The price of the last scheduling coordinator that remains on the path sets the congestion usage charge (expressed in dollars per megawatt hour), which is then charged to each scheduling coordinator's remaining schedule across the constrained (but no longer congested) path. The PX takes this process one step further by defining the zonal price in each zone to be equal to the price of the marginal PX generating unit (or load), which was adjusted to relieve the congestion. The scheduling coordinators with losing bids then have their schedules reduced across the congested interface while keeping their portfolios in balance. There is, in effect, an auction for congested paths, and an adjustment protocol for losing bidders.
20. 20. The approach is, however, still being debated. The comment "most sensibly" reflects my view that assigning physical rights would result in inefficient use of the transmission system because it would not be possible to construct a coordinating market to optimize usage in real time, but, worse, there would be scope for strategic purchases of capacity to block others moving power across constraints.
21. 21. Paul L. Joskow and Rodney Frame, Supporting Companies' Report on Horizontal Market Power Analysis, NERA, July 14, 1997.
22. 22. Note the screening is that if the postmerger HHI is below 1,000, then the merger is unlikely to have adverse competitive effects, while if it exceeds 1,800 and the merger increases HHI by more than 100, then the merger is likely to create or enhance market power.
23. 23. Appendix 1.4, A REPORT ON GENERATOR MARKET POWER IN THE ELECTRICITY MARKET OF ENGLAND & WALES, The Brattle Group Ltd., commissioned by Enron Europe LTD., Nov. 1997.
24. 24. Testimony of Miles Bidwell, Ph.D., Protest of Enron Power Marketing Inc. in Opposition to Request for Market-Based Rate Authority, before the Federal Energy Regulatory Commission, Docket No. ER97-1523-000 and OA97-470-000, Oct. 31, 1997.
25. 25. Alex Henney, REFORMING THE POOL OF ENGLAND & WALES, Competitive Electric Strategies Inc., Vienna, Va. (Nov. 1997).
26. 26. Fred C. Schweppe, Michael C. Caramanis, Richard D. Tabors and Roger E. Bohn, SPOT PRICING OF ELECTRICITY (Kluwer Academic Publishers, 1988).
27. 27. Steven Walton and Richard Tabors, Zonal Transmission Pricing: A Methodology and Preliminary Results from the WSCC, ELEC. J., Nov. 1996.
28. 28. The Supporting Companies have an estimate of $150 million as the possible increase in charges to customers from using the PECO Group approach to pricing from an unconstrained schedule compared with nodal pricing. This larger figure arises because all the gensets gain a higher price, not just those that are constrained-on. This figure is, however, neither a resource cost nor is it the appropriate alternative number to consider.
29. 29. Letter by Harry Singh and Alex Papalexopaulos of Pacific Gas and Electric, ELEC. J., Dec., 1997.
30. 30. Competition, Confusion and Chaos: The Metering Muddle, PUB. UTIL. FORT., Nov. 1, 1996.
31. 31. There is a fundamental difference between the type of decentralized self-commitment to which some members of the PJM refer, viz, committing their generation resources to meet "their" native load, and self-commitment to optimize the financial situation of bidding into a spot market.
32. 32. Alex Henney, PRIVATISE POWER: RESTRUCTURING THE ELECTRICITY SUPPLY INDUSTRY, Policy Study No. 83, The Centre for Policy Studies, London, 1987.
33. 33. For example, one public service commission in the throes of introducing retail access could not afford $15,000 to purchase reports detailing the mechanics of retail access in Britain and Scandinavia.