Policymakers have increasingly recognized the structural impediments to effective competition in electricity markets, which has resulted in a renewed emphasis on the need for careful market design and market monitoring in wholesale and retail electricity markets. In this study, we review the market monitoring activities of four Independent System Operators in the United States, focusing on such topics as the organization of an independent market monitoring unit (MMU), the role and value of external market monitors, performance metrics and indices to aid in market analysis, issues associated with access to confidential market data, and market mitigation and investigation authority. There is consensus across the four ISOs that market monitoring must be organizationally independent from market participants and that ISOs should have authority to apply some degree of corrective actions on the market, though scope and implementation differ across the ISOs. Likewise, current practices regarding access to confidential market data by state energy regulators varies somewhat by ISO. Drawing on our interviews and research, we present five examples that illustrate the impact and potential contribution of ISO market monitoring activities to enhance functioning of wholesale electricity markets. We also discuss several key policy and implementation issues that Western state policymakers and regulators should consider as market monitoring activities evolve in the West.

This report describes an investigation at Ernesto Orlando Lawrence Berkeley National Laboratory (Berkeley Lab) of the potential for coupling combined heat and power (CHP) with on-site electricity generation to provide power and heating, and cooling services to customers. This research into distributed energy resources (DER) builds on the concept of the microgrid (mGrid), a semiautonomous grouping of power-generating sources that are placed and operated by and for the benefit of its members. For this investigation, a hypothetical small shopping mall ("Microgrid Oaks") was developed and analyzed for the cost effectiveness of installing CHP to provide the mGrid's energy needs. A mGrid consists of groups of customers pooling energy loads and installing a combination of generation resources that meets the particular mGrid's goals. This study assumes the mGrid is seeking to minimize energy costs. mGrids could operate independently of the macrogrid (the wider power network), but they are usually assumed to be connected, through power electronics, to the macrogrid. The mGrid in this study is assumed to be interconnected to the macrogrid, and can purchase some energy and ancillary services from utility providers.

Regardless of the form of restructuring, deregulated electricity industries share one common feature: the absence of any significant, rapid demand-side response to the wholesale (or, spot market) price. For a variety of reasons, most electricity consumers still pay an average cost based regulated retail tariff held over from the era of vertical integration, even as the retailers themselves are often forced to purchase electricity at volatile wholesale prices set in open markets. This results in considerable price risk for retailers, who are sometimes additionally forbidden by regulators from signing hedging contracts. More importantly, because end-users do not perceive real-time (or even hourly or daily) fluctuations in the wholesale price of electricity, they have no incentive to adjust their consumption accordingly. Consequently, demand for electricity is highly inelastic, which together with the non storability of electricity that requires market clearing over very short time steps spawn many other problems associated with electricity markets, such as exercise of market power and price volatility. Indeed, electricity generation resources can be stretched to the point where system adequacy is threatened. Economic theory suggests that even modest price responsiveness can relieve the stress on generation resources and decrease spot prices. To quantify this effect, actual generator bid data from the New York control area is used to construct supply stacks and intersect them with demand curves of various slopes to approximate the effect of different levels of demand response. The potential impact of real-time pricing (RTP) on the equilibrium spot price and quantity is then estimated. These results indicate the immediate benefits that could be derived from a more price-responsive demand providing policymakers with a measure of how prices can be potentially reduced and consumption maintained within the capability of generation assets.

Regardless of the form of restructuring, deregulated electricity industries share one common feature: the absence of any significant, rapid demand-side response to the wholesale (or, spot market) price. For a variety of reasons, electricity industries continue to charge most consumers an average cost based on regulated retail tariff from the era of vertical integration, even as the retailers themselves are forced to purchase electricity at volatile wholesale prices set in open markets. This results in considerable price risk for retailers, who are sometimes forbidden by regulators from signing hedging contracts. More importantly, because end-users do not perceive real-time (or even hourly or daily) fluctuations in the wholesale price of electricity, they have no incentive to adjust their consumption in response to price signals. Consequently, demand for electricity is highly inelastic, and electricity generation resources can be stretched to the point where system stability is threatened. This, then, facilitates many other problems associated with electricity markets, such as market power and price volatility. Indeed, economic theory suggests that even modestly price-responsive demand can remove the stress on generation resources and decrease spot prices. To test this theory, we use actual generator bid data from the New York control area to construct supply stacks, and intersect them with demand curves of various slopes to approximate different levels of demand elasticity. We then estimate the potential impact of real-time pricing on the equilibrium spot price and quantity. These results indicate the immediate benefits that could be derived from a more price-elastic demand. Such analysis can provide policymakers with a measure of how effective price-elastic demand can potentially reduce prices and maintain consumption within the capability of generation resources.

This report outlines an approach to assess the local potential for deployment of distributed energy resources (DER), small power-generation installations located close to the point where the energy they produce will be consumed. Although local restraints, such as zoning, building codes, and on-site physical barriers are well-known frustrations to DER deployment, no analysis method has been developed to address them within a broad economic analysis framework. The approach developed here combines established economic optimization techniques embedded in the Distributed Energy Resource Customer Adoption Model (DER-CAM) with a geographic information system (GIS) analysis of local land-use constraint. An example case in the San Diego area is developed from a strictly customer perspective, based on the premise that future development of DER may take the form of microgrids ((mu)Grids) under the control of current utility customers. Beginning with assumptions about which customer combinations have complementary energy loads, a GIS was used to locate specific neighborhoods in the San Diego area with promising customer combinations. A detailed energy analysis was conducted for the commercial/residential area chosen covering both electrical and heat energy requirements. Under various scenarios, different combinations of natural gas reciprocating engines were chosen by DER-CAM, ranging in size from 25 kW to 500 kW, often with heat recovery or absorption cooling. These generators typically operate throughout the day and are supplemented by purchased electricity during late-night and early-morning hours, when utility time-of-use prices are lowest. Typical (mu)Grid scenarios displaced about 80 percent of their annual gas heat load through CHP. Self-generation together with absorption cooling dramatically reduce electricity purchases, which usually only occur during nighttime hours.

Although the government sector represents only 10 to 15 percent of the economy in most countries, carefully targeted public procurement can play a significant role in market transformation through its influence on both buyers and suppliers. Government leadership in energy-efficient purchasing can set an example for other buyers, while creating opportunities for leading manufacturers and distributors to increase their sales and market share by offering energy-efficient products at competitive prices. Under proper circumstances, a highly visible government purchasing policy can have a disproportionately large influence on the market for efficient products. In the United States, President Bush signed an Executive Order in 2001 directing all federal agencies to buy products with low standby power (1 watt or less where possible). This represents a deliberate choice to use government purchasing - rather than regulations or incentives - as a market-based strategy to encourage energy savings. It also builds upon existing efforts to encourage Federal purchase of energy-efficient products (Energy Star products and others in the top 25th percentile of efficiency). This paper summarizes the Federal Energy Management Program s first 18 months of experience in implementing this Executive Order, including analysis of data on standby power, interactions with manufacturers and industry groups, and the relationship between these efforts and other federal programs concerning product labelling, testing, rating, and efficiency standards. After five years of implementing low-standby power purchasing, we estimate energy savings for federal agencies alone at about 230 GWh/year (worth US$14 million), with spillover effects on the broader market that will save all US consumers nearly 4000 GWh/year (US$300 million).