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The Effect of Load Management upon Transmission and Distribution Costs: A Case Study

Michael A. Einhorn

Year: 1988
Volume: Volume 9
Number: Number 1
DOI: 10.5547/ISSN0195-6574-EJ-Vol9-No1-6
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Abstract:
A new era may be emerging for the strategists and decision makers who are responsible for reliably and economically supplying electricity to America's homes and businesses. In the last decade, fuel shortages, price hikes, record-high interest rates, and a new environmentalist awareness have led the nation's utility planners to use conservation and load management strategies in order to curtail their customers' demands for energy and plant capacity. Undertaken primarily to reduce requirements for future generation capacity, load management strategies generally succeeded in reducing system peak load. However, utility planners often implemented these strategies with little regard to the effects upon their company's transmission and distribution (T&D) capacity requirements.



Common Carriage and the Pricing of Electricity Transmission

Chris Doyle and Maria Maher

Year: 1992
Volume: Volume 13
Number: Number 3
DOI: 10.5547/ISSN0195-6574-EJ-Vol13-No3-4
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Abstract:
The electric supply industry in Europe is increasingly under pressure to become more competitive. Deregulation and privatisation in the United Kingdom demonstrate the feasibility of this. Draft directives have already been agreed upon by the European Commission to open access in energy markets. We examine the relationship between generators, transmission networks and consumers within a full information static, short-run framework. We show that open access is desirable if accompanied by common carriage and competition in generation. Common carriage is a necessary but not a sufficient condition for efficient outcomes to emerge. We also discuss the pricing of transmission services under conditions of open access and competition in generation.



Reactive Power is a Cheap Constraint

Edward Kahn and Ross Baldick

Year: 1994
Volume: Volume15
Number: Number 4
DOI: 10.5547/ISSN0195-6574-EJ-Vol15-No4-9
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Abstract:
Hogan (1993) has proposed a version of marginal cost pricing for electricity transmission transactions that include a component for reactive power to support voltage at demand nodes. His examples support the notion that the cost of satisfying voltage constraints can be quite high. We show that in his simplest example the price on this constraint results from an uneconomic and artificial characterization of the problem, namely an inefficient and unnecessarily constrained dispatch. By eliminating this characterization, the price of reactive power falls to a very modest level. Our counterexample has implications for the institutional arrangements under which transmission pricing reform will take place. We believe that environment will be an open access competitive setting, where dispatch is still controlled by one group of participants. Manipulation of marginal transmission costs becomes quite feasible in complex networks through subtle changes to dispatch. Therefore an open access regime using marginal cost pricing must involve either some kind of monitoring and audit function to detect potential abuses, or alternatively, institutional restructuring to eliminate conflicts of interest.



Electricity Market Integration in the Pacific Northwest

Chi-Keung Woo, Debra Lloyd-Zannetti and Ira Horowitz

Year: 1997
Volume: Volume18
Number: Number 3
DOI: 10.5547/ISSN0195-6574-EJ-Vol18-No3-4
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Abstract:
Evidence of market integration and price competition support a policy of price deregulation and open access in the electric power industry. The objective of this paper is to test the hypotheses that wholesale electricity submarkets in the Pacific Northwest region of the WSCC are integrated, and price competition exists within these integrated submarkets. To this end, we apply a bivariate cointegration test, a price-difference test and a causality test to the 1996 on-peak daily electricity prices off our submarkets in the Pacific Northwest of North America: Mid-Columbia and California-Oregon Border (COB) in the Western US, and BC/US Border and Alberta Power Pool in Western Canada. The price-difference test results support the hypothesis that the following pairs of markets are integrated: (a) BC/US Border and Mid-Columbia; (b) BC/US Border and COB; and (c) Mid-Columbia and COB. A comparison between the gross profit from price arbitrage and the posted transmission tariff indicates that price competition prevails in these market pairs, and the causality test results provide supporting evidence that price leadership does not exist in these three market pairs. Finally, a market-share analysis indicates that B. C. Hydro does not have market power in the aggregate market comprising BC/US Border, Mid-Columbia and COB.



Financial Transmission Rights Meet Cournot: How TCCs Curb Market Power

Steven Stoft

Year: 1999
Volume: Volume20
Number: Number 1
DOI: 10.5547/ISSN0195-6574-EJ-Vol20-No1-1
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Abstract:
This paper reconsiders the problem of market power when generators face a demand curve limited by a transmission constraint. After demonstrating that the problem's importance originates in an inherent ambiguity in Cournot-Nash theory, I review Oren's (1997a) argument that generators in this situation capture all congestion rents. In the one-line case, this argument depends on an untested hypothesis while in the three-line case, the Nash equilibrium was misidentified. Finally, the argument that financial transmission rights (and TCCs in particular) will have zero market value is refuted by modeling the possibility of their purchase by generators. This allows transmission owners, who initially own the TCCs, to capture some of the congestion rent. In fact when total capacity exceeds line capacity by more than the capacity of the largest generator, TCCs should attain their perfectly competitive value, thereby curbing the market power of generators.



Regulation of an Electric Power Transmission Company

Thomas-Olivier Leautier

Year: 2000
Volume: Volume21
Number: Number 4
DOI: 10.5547/ISSN0195-6574-EJ-Vol21-No4-3
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Abstract:
Designing regulatory contracts for the operators of power transmission networks has become a critical policy issue in the United States. In this paper, a regulatory contract is proposed that induces network operators to optimally expand the grid, which is crucial for the emergence of efficient wholesale power markets, while also satisfying the other traditional regulatory objectives. The proposed mechanism is readily implementable, since it builds on a contract currently in place in England and Wales.



Modeling Cournot Competition in an Electricity Market with Transmission Constraints

Bert Willems

Year: 2002
Volume: Volume23
Number: Number 3
DOI: 10.5547/ISSN0195-6574-EJ-Vol23-No3-5
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Abstract:
This paper studies Cournot competition with two generators who share one transmission line with a limited capacityto supply price-taking consumers. In such a game the network operator needs a rule to allocate transmission capacity. Three rules are studied: all-or-nothing, proportional, and efficient rationing. The first result is that if the network operator taxes the whole congestion rent, the generators strategically change their production quantities, such that the network operator obtains no congestion rent. This gives poor incentives for investment in transmission capacity. The second result is that the network operator can create competition among the generators, which can increase welfare. Marginal nodal congestion pricing, which is optimal under perfect competition, is sub-optimal when generators can set their production quantities freely. It does not generate revenue for the network operator, nor does it increase competition among the generators.



Electricity Transmission Pricing and Performance-based Regulation

Ingo Vogelsang

Year: 2006
Volume: Volume 27
Number: Number 4
DOI: 10.5547/ISSN0195-6574-EJ-Vol27-No4-5
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Abstract:
Performance-based regulation (PBR) is influenced by the Bayesian and non-Bayesian incentive mechanisms. While Bayesian incentives are impractical for direct implementation, the insights from their properties can be combined with practical non-Bayesian mechanisms for application to transmission pricing. This combination suggests an approach based on the distinction between ultra-short, short and long periods. Ultra-short periods are marked by real-time pricing of point-to-point transmission services. Pricing in short periods involves fixed fees and adjustments via price-cap formulas or profit sharing. Productivity-enhancing incentives have to be tempered by long-term commitment considerations, so that profit sharing may dominate pure price caps. Investment incentives require long-term adjustments based on rate-of-return regulation with a �used and useful� criterion.



A Quantitative Analysis of the Relationship Between Congestion and Reliability in Electric Power Networks

Seth Blumsack, Lester B. Lave and Marija Ilic

Year: 2007
Volume: Volume 28
Number: Number 4
DOI: 10.5547/ISSN0195-6574-EJ-Vol28-No4-4
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Abstract:
Restructuring efforts in the U.S. electric power sector have tried to encourage transmission investment by independent (non-utility) transmission companies, and have promoted various levels of market-based transmission investment. Underlying this shift to �merchant� transmission investment is an assumption that new transmission infrastructure can be classified as providing a congestion-relief benefit or a reliability benefit. In this paper, we demonstrate that this assumption is largely incorrect for meshed interconnections such as electric power networks. We focus on a particular network topology known as the Wheatstone network to show how congestion and reliability can represent tradeoffs. Lines that cause congestion may be justified on reliability grounds. We decompose the congestion and reliability effects of a given network alteration, and demonstrate their dependence through simulations on a 118bus test network. The true relationship between congestion and reliability depends critically on identifying the relevant range of demand for evaluating any network externalities.



A Dynamic Incentive Mechanism for Transmission Expansion in Electricity Networks: Theory, Modeling, and Application

Juan Rosellón and Hannes Weigt

Year: 2011
Volume: Volume 32
Number: Number 1
DOI: 10.5547/ISSN0195-6574-EJ-Vol32-No1-5
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Abstract:
We propose a price-cap mechanism for electricity-transmission expansion based on redefining transmission output in terms of financial transmission rights. Our mechanism applies the incentive-regulation logic of rebalancing a two-part tariff. First, we test this mechanism in a three-node network. We show that the mechanism intertemporally promotes an investment pattern that relieves congestion, increases welfare, augments the Transco's profits, and induces convergence of prices to marginal costs. We then apply the mechanism to a grid of northwestern Europe and show a gradual convergence toward a common-price benchmark, an increase in total capacity, and convergence toward the welfare optimum.




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