The national trend toward electric utility deregulation means putting the customer first, and deregulation can only succeed with fair, open and economical transmission from generators to users, said Richard Schuler, Cornell professor of economics and civil and environmental engineering, in a talk Oct. 20 at Canisius College in Buffalo.
"In a power market there are no inventories; the customers want a bundle of services in different proportions at different times, and the flow of electrons are governed by physical, not commercial, laws," Schuler said.
This means, he said, that an Independent State Operator (ISO), through sophisticated automated computer programs, must match up bids and offers efficiently while still assuring that the electricity system doesn't collapse. Preventing a system collapse, he said, will sometimes disallow "apparently lucrative contracts."
Schuler is on the board of directors for the New York State Independent System Operator, which took over operation of the state's power transmission grid and bulk power markets on Nov. 11.
In a workshop titled "Understanding Our Electric Costs and the Impact of Deregulation," presented by the Buffalo Branch of the Federal Reserve Bank of New York, Schuler told nearly 100 business leaders and government officials about the need for ISOs under deregulation.
"The transmission entity is the key facilitating player, both in providing the open access means of transport to all buyers and sellers, and because of the real time matching requirements of supply and demand," said Schuler. "This traffic cop role is similar to that of the air traffic controller for the airlines."
The electric utility industry has traditionally been "vertically integrated," Schuler said, so that companies that generate electricity also transmit and distribute it. Deregulation and competition separates those three functions and requires that all suppliers have approximately equal access to transportation routes.
"The rules and mechanisms governing trades on the New York Stock Exchange have changed regularly over the past 200 years, and their problems are minuscule compared with those faced by the ISO," Schuler said.
"Similarly, the response of the physical system to these market-driven exchanges must be reviewed regularly in order that subsequent operating practice can be updated," he said.
Schuler also is director of the Cornell Institute for Public Affairs and is participating in a Cornell study of the effects of competitive markets on the reliable operation of the electricity supply system.
Funded by a National Science Foundation grant, the research uses a simulated Northeast electricity grid and data from laboratory experiments in market behavior.
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