January - March 1998
Electric
Power Transmission: Rationing a Limited Resouce
Assessing
the Effectiveness of Competition in the Electricity Generation Industry
[e-lab Home Page] [Energy Lab Home Page] [MIT Home Page] . Electric Power Transmission: Rationing a Limited Resources n
the redesigned electric power industry, electricity-generating companies
compete for customers and then transmit their electricity using the existing
transmission system. But at times the transmission system connecting
generators and customers may not be capable of handling all sales. Who
gets to transmit their electricity and who doesn't during those times is
an important technical and legal question. A plan proposed by researchers
at MIT and McGill University lets market forces decide. Under their plan,
electricity generators and their customers make deals with one another
and then submit their transmission needs to a central coordinator that
oversees operation of the transmission system. The coordinator responds
with a transmission price for each proposed transaction. If a given transaction
will move the transmission system toward technical problems, the price
is higher. The more serious and more imminent the problem, the higher the
price. The market should thus self-adjust: higher prices will cause customers
to get off the transmission system, so impending problems should rarely
be realized. Money collected by the central coordinator can be used to
maintain and upgrade the transmission
system. The researchers have already developed software that can produce
appropriate transmission price signals, and they are investigating other
services provided by the electric power industry that could become competitive
and thus more efficient.
. Assessing the Effectiveness of Competition in the Electricity Generation Industry ey to the
restructuring of the US electricity industry is allowing
generators of electricity to compete for residential, commercial, and
industrial customers. But in certain regions or at certain times, might
the
number of electricity providers be so small that competition is limited,
enabling a few providers to exercise "market power," raising their
prices
above their costs without losing sales? One means of examining that
question is to consider the geographic area over which providers can
compete. A broad geographic market suggests more competitors and less
opportunity for market power. To explore the extent of the geographic
market for electricity-generation services, an Energy Laboratory researcher
studied trading between providers in the already-operating "wholesale"
electricity market, where utilities sell electricity to one another
at
competitive prices and transmit it using today's transmission system.
Using
new econometric techniques, the researcher analyzed data on daily wholesale
electricity prices to determine the extent to which utilities in the
five
subregions of the western United States traded with one another during
an
18-month period. She found that fully 80% of the time the wholesale
market
included potential competitors throughout the entire western area.
The rest
of the time the market was considerably smaller, largely due to congestion
on the transmission system. While these findings cannot be directly
applied
to the emerging retail market, they do suggest conditions under which
the
number of effective competitors may dwindle and market power may be
an issue.
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