POSITIONING FOR A COMPETITIVE ELECTRIC INDUSTRY WITH PG-AND-ES HYDROTHERMAL OPTIMIZATION MODEL

The Hydro-Thermal Optimization (HTO) system optimizes the weekly elect ric production schedules of Pacific Gas and Electric Company's diverse resource mix. PG&E developed HTO to reduce operating costs, forecast marginal costs, and position itself for competition. PG&E implemented the system after extensive prototyping and validation and uses HTO dai ly for unit commitment, hydro scheduling, energy trading, fuel forecas ting, resource evaluation, and marginal cost-based pricing. PG&E estim ates annual benefits of HTO conservatively at $15 million. On a broade r scale, PG&E has used HTO to analyze auction protocols for a deregula ted power market and demonstrated that use of HTO-like tools to admini ster a power auction, as is done in the UK, could result in profit dis tribution inequities among bidders. HTO thus enabled PG&E to support a profound change in California's restructuring of the electric industr y, from the proposed UK-type pool to a decentralized decision-making f ramework in which bidders optimize their own operations. As a result, California's $20 billion electric-power market will realize increased efficiencies and savings for both taxpayers and consumers.