PWP-042

The major theme of this report is that the WEPEX Applications prevent the ISO from clearing the market, and that this is the root of the most important problems. The rules at fault (1) prevent the PX and other Scheduling Coordinators from passing on all of their bids to the ISO, and (2) prevent the ISO from dispatching beyond the point at which congestion is eliminated. Although it is generally accepted that these restrictions prevent the ISO from achieving the least-cost dispatch, many other consequences of this market-clearing failure have not been widely recognized. These include sub-optimal dispatches by the PX when the system is uncongested, congestion charges that reward power flow in the congested direction, and incentives for Scheduling Coordinators to ignore known intra-zone congestion. But the most pernicious effect of failing to clear the market may be decreased system reliability. Only two changes are necessary to remedy these problems: (1) allow the Scheduling Coordinators to submit all of their bids to the ISO; and (2) allow the ISO to minimize cost using all submitted bids.

Four minor themes will also be considered. First, and most important, is the lack of evenhanded treatment of the PX. Second is the ambiguity introduced by a definition of zonal pricing that ignores loop flow. An alternative definition is offered. Third, the WEPEX definition of transmission congestion contracts (TCCs) is based on actual instead of pre-specified flows which spoil the incentive properties of TCCs. Lastly, the WEPEX proposal intentionally avoids marginal-cost pricing of losses. This cause some inefficiency, but more significantly, increases use of the power grid which will necessitate costly grid expansion. These problems can be solved by basing zone definitions on differences in marginal cost, by using the standard TCC definition, and by using marginal-cost pricing of losses.