{"id":756,"date":"2013-08-16T08:19:17","date_gmt":"2013-08-16T13:19:17","guid":{"rendered":"https:\/\/allenergyconsulting.com\/blog\/?p=756"},"modified":"2014-12-03T15:19:50","modified_gmt":"2014-12-03T21:19:50","slug":"power-market-complexity","status":"publish","type":"post","link":"https:\/\/allenergyconsulting.com\/blog\/2013\/08\/16\/power-market-complexity\/","title":{"rendered":"Power Market Complexity"},"content":{"rendered":"

A very\u00a0good blog by James Bushnell<\/a>\u00a0highlights the complexity of the electric markets.\u00a0\u00a0 There are areas that Dr. Bushnell and I will diverge in the article, but I like the fact that he brings two major themes into the blog \u2013 the electric market construct and the technical issues of running the electric system.<\/p>\n

The electric market construct, in terms of regulation and deregulation is the topic I have discussed many times particularly in my\u00a0December 2011 blog Regulation vs. De-regulation<\/a>.\u00a0\u00a0 Based on the comments and new information I have received, I still believe that regulation is likely \u00a0the most robust path for society when it comes to electricity.\u00a0\u00a0 Dr. Bushnell noted even in regulated form, there will be energy trading as he points out \u201cit usually doesn\u2019t make sense for them to generate it all themselves\u201d.\u00a0\u00a0 This is true, but IF the market was regulated, this volume would be substantially less and the ability to rig or game the system will be limited.\u00a0\u00a0 The key issue for regulation is the governing bodies of the regulated institution.\u00a0 Will they be properly compensated to be highly educated on the issues and to avoid any potential regulatory capture?\u00a0 \u00a0As I noted in my previous blog, this is much easier to manage than to deal with abundance of complicated trade structure and high powered attorneys.<\/p>\n

Dr. Bushnell is correct in highlighting the commitment issues in dispatching power plants.\u00a0\u00a0 Dr. Bushnell seems to have miss-portrayed the historical dispatch mechanism.\u00a0\u00a0 He noted, \u201c the California power exchange took bids for price and quantity, but not much else\u2026\u201d\u00a0 First of, California certainly is not the best representation of how electricity was managed.\u00a0\u00a0 However, beside that point, typically in the days before regional transmission organization (RTO) \u2013 most of the utilities were somewhat regulated.\u00a0\u00a0 They would generate power based on their OWN loads before accounting for other opportunities.\u00a0\u00a0 The jump to supply, not only your own load that causes this variation that you cannot manage very well.\u00a0\u00a0 This is the issue of ramping and turning on and off as Dr. Bushnell alluded to \u201c\u2026The fact that a price solution coming out of a computer program did not explicitly model them did not mean that the costs were not represented in the prices.\u00a0 Its just that they were the problem of the plant owners, who had to figure out how to best operate their plants to meet the sales orders being produced by the market.\u201d\u00a0\u00a0 If you just managed your own load you will eventually understand it and build and operate generation resources for that particular profile.<\/p>\n

In addition, if you did operate wrongly in the old model you got paid anyway since it was all cost past through, so it was not really the plant owners problem.\u00a0\u00a0 However, by operating more effectively, you will reduce ratepayer cost which will allow for more investments in the future.\u00a0 By accepting off-system sales and purchases, it adds the nuance which requires a \u201ccentralized\u201d optimizer \u2013 RTO.\u00a0 This was the first step in de-regulation and allowing the independent power producers \u2013 such as JP Morgan \u2013 to begin their conquest.<\/p>\n

Before I wrap up, I will have to disagree on this last point where he refers to the electricity market as complex, but so are other areas and then names Refining as an example.\u00a0\u00a0 I believe I am perfectly situated to compare these two industries given my significant and successful experience in both these industry.\u00a0 Dr. Bushnell background does not seem to show enough substance to compare these two industries.\u00a0\u00a0 To the dismay of many of my Oil & Gas colleagues, I will state that the electric markets are, by far much\u00a0more<\/strong>\u00a0complex than anything in the Oil & Gas industry.\u00a0\u00a0 The simple physics of electricity makes this so.\u00a0\u00a0 You cannot store electricity in any significant volume.\u00a0 You cannot even think about managing it just in time (JIT) \u2013 it has to be all the time.<\/p>\n

If a gasoline station runs out of its inventory, the consumer can drive to another gas station or worse walk there with a container.\u00a0 In the case of the electric world, if there is any imbalance with demand and supply the whole grid may shut down.\u00a0\u00a0 At this point, there is no walking down to the next station.\u00a0 It will take a coordinated effort to restart the grid.\u00a0\u00a0\u00a0 Hence, there is a lot of complexity within the electric markets that need to be considered.\u00a0\u00a0 I will not get into the numerous governing bodies that get themselves involved into electricity.\u00a0\u00a0 Where are the low-income gasoline subsidies?<\/p>\n

In the past, the markets had limited computer power therefore much shortcuts were done.\u00a0\u00a0 They did the best with what they have.\u00a0\u00a0 Now computer power has progressed much.\u00a0 We could decide to keep it simple and manage it with the shortcuts or we can take advantage of what technology has to offer with all its latest computing skills and start making better real-time decision.\u00a0 The abuse of trading is not from this step, but from the step of de-regulating the markets without enough enforcements and pragmatic thinking of rules and regulations.\u00a0\u00a0 Many of the de-regulating bodies captured the process and found all the loop holes similar to the tax code development.<\/p>\n

In wrapping up, I am very grateful for Dr. Bushnell in bringing up the complexities in the electric markets.\u00a0 Decentralized decision making was done because the market was decentralized.\u00a0\u00a0 To try to have decentralized thinking in a centralized market is like having your cake and eating it to.\u00a0\u00a0 No doubt garbage in is garbage out.\u00a0 Assuming we don\u2019t restructure the market but continues its current form. We need better governing bodies to throw out the trash before it happens, not when it is in the system or after the fact per the JP Morgan case.<\/p>\n

Your Energy Consultant,<\/p>\n

David K. Bellman<\/a><\/p>\n

614-356-0484<\/p>\n","protected":false},"excerpt":{"rendered":"

A very\u00a0good blog by James Bushnell\u00a0highlights the complexity of the electric markets.\u00a0\u00a0 There are areas that Dr. Bushnell and I will diverge in the article, but I like the fact that he brings two major themes into the blog \u2013 the electric market construct and the technical issues of running the electric system. The electric […]<\/p>\n","protected":false},"author":1,"featured_media":267,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1,6],"tags":[126,214,213,24],"class_list":["post-756","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-market-insights","category-power","tag-deregulation","tag-power-market-design","tag-power-markets","tag-regulation"],"_links":{"self":[{"href":"https:\/\/allenergyconsulting.com\/blog\/wp-json\/wp\/v2\/posts\/756","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/allenergyconsulting.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/allenergyconsulting.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/allenergyconsulting.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/allenergyconsulting.com\/blog\/wp-json\/wp\/v2\/comments?post=756"}],"version-history":[{"count":8,"href":"https:\/\/allenergyconsulting.com\/blog\/wp-json\/wp\/v2\/posts\/756\/revisions"}],"predecessor-version":[{"id":1425,"href":"https:\/\/allenergyconsulting.com\/blog\/wp-json\/wp\/v2\/posts\/756\/revisions\/1425"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/allenergyconsulting.com\/blog\/wp-json\/wp\/v2\/media\/267"}],"wp:attachment":[{"href":"https:\/\/allenergyconsulting.com\/blog\/wp-json\/wp\/v2\/media?parent=756"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/allenergyconsulting.com\/blog\/wp-json\/wp\/v2\/categories?post=756"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/allenergyconsulting.com\/blog\/wp-json\/wp\/v2\/tags?post=756"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}