Reliability and Markets: New Reports Out from NERC, ISO-RTO Council

Michael Giberson

Yesterday saw the release of reports from two organizations focused on the North American power transmission system. On the reliability side of the grid, the North American Electric Reliability Corporation released the 2007 edition of its annual Long-Term Reliability Assessment. (The first link is to the news release, the second to the report. The Washington Post story is here.)

NERC reports that “unless additional resources are brought into service, some areas could fall below their target capacity margins within two or three years.”

“We are at the stage where emergency situations are becoming more frequent,” said Rick Sergel, president and CEO of NERC. “Though some improvements have been made, we are requiring our aging grid to bear more and more strain, and are operating the system at or near its limits more often than ever before. As operating margins decrease, we are limiting our ability to manage unplanned events like equipment failures and extreme weather,” Sergel said.

NERC said peak demand for electricity in the United States is forecasted to increase by almost 18 percent (135,000 MW) in the next 10 years, while committed resources to meet demand, including demand response programs, are projected to increase by only roughly 8.5 percent (77,000 MW).

The ISO-RTO Council, the organization of the regional power system operators with integrated power markets, released three reports at a news conference. One report surveys overall progress of the integrated regional systems, a second examines adaptation to the growth of renewable power resources, and the third looks at the integration of demand response into the regional grids.

The IRC press release states:

Despite record peak demand levels in 2006, the ISOs and RTOs maintained high levels of reliability. In addition, electricity prices in the majority of these markets have been falling, regional planning is producing new transmission investments, and markets are providing price signals that support investment in new generation.

More than 110,000 megawatts (MW) of new generation were added between 2001 and 2006.

NERC’s 135,000 MW of forecasted growth in demand over 10 years is not directly comparable to the IRC’s report of 110,000 MW of new generation added in five years — for example, NERC’s forecast was just for the U.S. and the IRC’s scope excludes parts of the U.S. and includes parts of Canada. The difference in tone between the two news releases reflects the nature of the two organizations: as a reliability agency, NERC is supposed to worry; as a trade organization of sorts, the IRC can be expected to present a happy face.

But perhaps the NERC’s concern and the IRC’s optimism can be tied to one lesson that comes out of the mechanism design literature in economics (for which that prize was awarded earlier in the week): NERC is limited to issuing guidance and rules, and just recently gained some penalty authority, but can’t use price mechanisms directly. Mechanism design helps economists understand how hard it can be to get information flows and incentives right when your toolbox is limited in this way. IRC’s members supervise markets, and while there is still much to be worked out in the details of integrating market systems with bulk power grids, the progress over the past five to ten years provides grounds for optimism.

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