Providing for transmission in times of scarcity: an ISO cannot do it all

The main purpose of this paper is to point out issues critical for establis hing a good transmission strategy in an energy market. First, it is suggest ed that a transmission strategy must be discussed in the context of a speci fic market structure. Responsibilities of a transmission system provider di ffer fundamentally, depending on the type of energy market it is supposed t o serve. To show this, a summary of information assumed to be known to an I ndependent System Operator (ISO) in three energy market structures is given , i.e., (1) a mandatory ISO, (2) an entirely multilateral market and (3) a voluntary ISO. Next, it is suggested which of the transmission strategies proposed may be most suitable for each of these three markets. In particular, we argue that the proposal by Hogan (Hogan WW. Contract networks for electric power tran smission, J Regulatory Economics, 1992; 4: 211-242) naturally lends itself only to a market structure that is a mandatory pool in which all energy pri ce bids are assumed to be known to the ISO. In contrast to this, the propos al by Wu and Varaiya (Wu FF and Varaiya P, Coordinated multilateral trades for electric power networks: theory and implementation, POWER Report PWR-03 1, University of California Energy Institute, June 1995) is well suited for a bilateral energy market, in which an ISO imposes no requirements on mark et participants regarding prices of specific energy transactions. Finally, the proposal by Ilic et al. (Ilic M, Graves F, Fink L and DiCaprio A. A fra mework for operations in a competitive open access environment, Electricity Journal, March 1996; Ilic M. A possible framework for implementing energy transactions into real-time system operation and pricing for system service s. Proceedings of the EPRI Conference on Innovative Approaches to Electrici ty Pricing: Managing the Transition to Market-Based Pricing, La Jolla, CA, March 1996; IBC M, Hyman L, Alien EH, Cordero R and Yu C-H, Interconnected system operations and expansion planning in a changing industry: coordinati on vs. competition. In: Topics in regulatory economics on policy series. Do rdrecht: Kluwer Academic, 1997. pp. 307-332) lends itself to a voluntary IS O structure, in which some energy providers are scheduled on a price bid ba sis by an ISO and some are multilateral. The differences between these three proposals concerning an ISO's responsib ility;for achieving systemwide efficiency and fair charges for transmission service, particularly at times of scarcity, are analyzed. It is shown that an ISO equipped with the present types of optimization tools for both reli ability and efficiency is generally 'blind' to questions of fairness with r espect to the individual market participants; providing transmission system support. In order to get around this problem, much more work will have to be done by the technical and regulatory communities. The only tools at an I SO's disposal at present are used for systemwide objectives, such as system wide reliability. While some of this work is under way, it will take some t ime to develop the actual ISO tools necessary for implementing the fairness criterion metrics ('standards'), whichever ones the community arrives at. (Developing metrics of fair reliability contributions for the individual ma rket participants is a nonunique process, and it may be very difficult to a ctually agree upon). Meanwhile, in order to have an ISO actively help energy markets in a fair a nd efficient way in realistic markets, which are likely to be voluntary ISO s, a system user must become an active part of decision making, indicating how much it wishes to use the system at times of scarcity and at which pric e. One possible way for doing this, based on the IBC proposal, is described here. (C) 1997 Elsevier Science Ltd. All rights reserved.