Traditionally, the power system industry has been a vertically integrated industry, consisting of three major components: Generation, Transmission, and Distribution. In the last few years, due to technical, economic and environmental concerns, the need for a deregulated power system market was recognized by the government regulatory authorities, consumers and the utility industry in general. The first component to be deregulated was Generation, which led to competition in generation, and creation of forward and spot energy markets. Transmission and distribution were left as regulated monopolies.
A monopolistic transmission and distribution industry has no incentive to provide efficient and cost-effective delivery of energy to the consumers. This can only be accomplished by providing and/or designing meaningful interconnections between generators (energy sources) and consumers (energy sinks). We feel that an efficient way to ensure this is by designing and creating markets for real power reserve and wires. Our research shows that for true and real unbundling of the power industry market, it is also critically important to clearly define the responsibitlies of both these market participants. Real power reserve market should be able to provide energy in case a generator fails, and the responsibility of the wires should be to provide the physcial path to energy. Wires should not be responsible for stability/security of the system.
FERC/NERC has suggested a cost-based approach for transmission and distribution. However this does not breed competition and open markets, and might under-value these services. We suggest a value-based alternative which is described in the next section.
This approach allows for a more complete specification of the consumer’s needs and requirements than cost-based approach. Then our approach suggests creating a market for the products required by the consumers and defines community services as additional/ancillary services to ensure system’s security, reliability etc. This is a value-based approach, in which the price of the “well-defined” product will be deinfed by supply and demand. This approach emplasized the value of a product rather than its cost. The value of the product can be estimate by performance objective as seen by customer. The value of a good will set the price cap and then price cap can be used to estimate the market performance that none of the seller exhibit technology related market power.