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Northeast could face energy chaos, MIT expert warns

CAMBRIDGE, Mass. -- An MIT expert in electric power systems is worried that the northeastern United States may be headed toward energy chaos rivaling that seen recently in California. She and a colleague report their concerns and offer a solution in an invited paper in the September 1 issue of Public Utilities Fortnightly.

Operators of the three big electric power grids in the Northeast have been asked by the Federal Energy Regulatory Commission (FERC) to submit a joint plan this month to ensure that anybody who wants to transfer electricity from one grid to another can do it.

According to Dr. Marija Ilic, a senior research scientist in the Department of Electrical Engineering and Computer Science, and her colleague Leonard Hyman from Salomon Smith Barney, one of the plans being considered by the operators would unnecessarily increase electricity prices in the Northeast and leave the region more susceptible to blackouts in the future.

Gridlocked grids

For the electricity industry to become truly competitive, "marketers" -- individuals or organizations that buy electricity from generating companies and sell it to users -- need to be able to offer customers the best deal they can. If the cheapest power plant is on the New York grid and the potential customer is on the New England grid, the marketer must buy transmission service to move the electricity from one grid to the other.

Buying that service isn't simple. Transmission companies do not cross regional boundaries, so the marketer must patch together separate arrangements with transmission companies in each region. Worse still, if either regional grid runs into internal trouble, the marketer's transmission deal can get shut off unexpectedly. As a result, the cheapest electricity source doesn't always get used.

To make the marketer's job easier, FERC has told the operators of the three northeastern grids -- New England, New York, and PJM (serving Pennsylvania, New Jersey, and Maryland) -- that they have to coordinate transmission among the three regions. They need to come up with a joint plan this month.

A troubled marriage

How are grid operators likely to pull off what Ilic and Hyman refer to as "this shotgun marriage"?

"The simplest solution would be to have one firm own and operate all the transmission wires in the three grids," said Ilic. "But that would be a shock to all participants. These are business people, and nobody wants to give up their turf."

As a result, the grid operators are likely to focus on another plan under discussion. In that plan, all three would adopt the same techniques and software for running their power grids, then exchange data and work together to make sure interregional transmission is available. The techniques and software now used by PJM are likely to become this "industry standard."

That plan worries Ilic and Hyman. For one thing, they don't think it will work. But more important, it leaves no one overseeing operation of the overall northeastern transmission system, and they believe that problems are likely to occur.

The existing transmission grids were designed to serve regional needs. Power transfers from one grid to another were meant for emergencies only. Computer simulations performed at MIT show that heavy use of grid interconnections to tap cheaper power sources can have unintended effects. Trades between two regional grids can adversely affect operations in a third regional grid, potentially leading to frequency and voltage disturbances. If no one is in charge of correcting such problems, a grid could enter an operating mode that it cannot fix itself -- at least not easily or cheaply.

"Unless there's a clear understanding of who's ultimately responsible for reliability in the Northeast area, the lights may go out when we don't want them to go out -- in a massive sort of way," said Ilic.

Making everyone happy

What's the answer? In their article, Ilic and Hyman suggest something completely different. Their concept calls for establishing a market where transmission between grids is traded as a commodity. Any transmission company or grid operator who has extra transmission capacity could sell it, and any marketer who needs transmission capacity could buy it.

The market for interregional coordination would be run by a profit-making "Interregional Transmission Organization" (IRTO). The IRTO would make sure that all trades are physically possible, and it would oversee the operation of the northeastern transmission system. The better job it did, the more money it would earn -- an attractive opportunity for today's entrepreneurs.

According to Ilic, "With this arrangement, no one would have to give up their turf. Market participants within each grid would still be able to make independent decisions about how to run their businesses." Regional transmission companies could still serve their customers, sell excess capacity on the IRTO market, and even build more transmission lines to make more money. Marketers would be able to do "one-stop shopping" for the interregional transmission services they need.

And the operators of the regional grids would not be forced to adopt someone else's operating methods -- a distinct advantage in Ilic and Hyman's view. They argue that PJM's current approach isn't much different from that used in the old regulated industry. Most important, as trading increases, that approach won't be flexible enough to give industry participants the real-time information they need. For example, if customers know that the current electricity price is high, they can cut their use to save money -- and they simultaneously help reduce peak demand.

The tricky part of implementing an IRTO market would be developing the protocols and software to run it. "You're selling transmission service between grids, so you would need more involved models than we currently have and intelligence to guarantee that the trades are physically possible," said Ilic. Developing the needed protocols and software would be a serious challenge that would require the collaboration of computer specialists, power engineers, and economists.

Ilic's team at MIT is now developing approaches that demonstrate how an IRTO market might work. In case studies, computer models examine bids to buy and sell transmission and select the most economically efficient trades that will not disrupt the interconnected regional grids. Case studies for the Northeast show the hoped-for benefits: inexpensive supply and increased reliability.

Ilic and Hyman hope they're in time to "put the brakes on what's about to happen to electricity supply in this part of the United States." They believe that their alternative approach "would make the whole electricity industry more flexible and would bring it into the 21st century, like other high-tech industries."

Ilic leads the Competitive Power Systems Group at MIT and is affiliated with both MIT's Laboratory for Energy and the Environment and Laboratory for Information and Decision Systems. With funding from a variety of industrial sources, the group is developing new concepts and models for competitive power systems operations and management and exploring the distributed power industry of the future.

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