Letters to the Editor
July 2004
To the Editor:
Much water has gone over the dam since the onset of electric power deregulation, and some of the good intentions that spawned the movement may have been washed out to sea. One of the results is the inability of the marketplace to demonstrate that the cost of delivered power to end users has been minimized at an acceptable level of reliability. The necessary institutional and regulatory frameworks for allowing the creation of optimal markets or true competition are still incomplete or counterproductive. Thus, our electric power infrastructure is a proverbial ship floating on the storm-tossed ocean, in danger of sinking beneath the waves.
I believe the primary measure of successful "deregulation" is a minimization of the delivered cost of power to end users, at an acceptable level of reliability. To help achieve that, I suggest the following actions should be taken nationwide on a timely and consistent basis. I arrive at these suggestions based on my experience, including participating in approximately 1,000 committee meetings concerned with ISO/RTO formation and implementation around the country over the last 10 years or so.
As a result of arbitrarily set deadlines to put into place new organizations and concomitant regulations with conflicting priorities, the landscape is littered with inefficient, contradictory rules and compromises that are supposed to be used by the "marketplace participants" but do not result in the minimization of power costs with an acceptable level of reliability. Thus some ISO/RTO tariffs and procedures should be re-reviewed to identify what can be changed so that all market participants and their regulators can focus on this objective. For example, in some areas there is a significant disconnect between the required market procurement lead times and contract durations for end users to obtain generation capacity, versus the physical and financial ability of generators to actually provide enough of the needed power in time to serve existing and future loads. In some cases this has resulted in energy price volatility and reliability brinksmanship, where not enough new plant construction is forthcoming.
In addition, our electric systems should be planned and operated with sufficiently open and competitive transmission access, and simultaneous generation/DSM commitment and dispatch structures, so that all resources have an opportunity to optimally serve power consumers. To that end, many impediments in ISO/RTO areas, as well as within the more traditional vertically integrated utility regions, are candidates for removal or mitigation. For example, even though some progress has been made concerning "standard" transmission interconnection agreements (albeit only for some resources), some aspects of the procedural tasks required to fulfill their technical and commercial requirements are still counterproductive to minimizing cost, or meeting reliability criteria, and thus actually trying to use such agreements and procedures can still be problematic. Once again, the impact of this situation includes higher power costs, with additional reliability risks due to delays or cancellations of new facilities.
Price caps and rate freezes should also be removed if they are counterproductive. They can result in unexpected and unintended consequences, and retard or obviate desirable capital and operating decisions. Such arbitrary artifices may have been proposed to help justify the rush to deregulation, but they are inconsistent with meeting the goal of power-cost minimization at an acceptable level of reliability. Further, exogenous subsidies or preferences for some load-serving resources should be eliminated if feasible. In addition, utilities should competitively procure more of their new resources (DSM, generation, and transmission), whether obtained via financial contracts or physical plant. In-house sourcing should be used only if it is indeed the lowest-cost way to proceed in a timely manner.
Finally, in light of the importance our society places on reliability, and the greater cost of outages, some of the measures of acceptable reliability criteria should be revisited, and new standards implemented if appropriate. A concerted effort pursuing all of these essential goals is necessary to enable our electric power systems to truly fulfill the promise of deregulation and competition.
Richard P. Felak, P.E.
Felak@pop.net
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Utilities Fortnightly & Spark
