This summer again has brought to utilities in the St. Louis area and New York City outages to hundreds of thousands of customers; California produced a series of emergency stage condition declarations hoping to avoid involuntary rolling blackouts/brownouts, etc. These are events occurring now with some troubling frequency, bringing the matter of reference to the very forefront of interest. Indeed at the time when such social awareness is emphasized, the reliability of the power system has become noticeably less than perfect and/or even questionable.
Additionally, the industrial regulatory reform process has engendered a serious challenge in the security province; it looks as though there has been a dicey stride between the electric utility command-and–control operation/planning practices of the past, and the one, more libertarian, required under deregulation. Evidently this new framework has brought a real myriad of organizational, structural, as well as institutional complexities that have rendered both the efficiency and security problems very difficult to move forward into a societal acceptable level. Current efforts brought about, for instance by Epact05, DOE and FERC seem basically more generic, enunciative and willful than anything else. On the other hand the contributions from academia (NSF, Research Centers, Labs, etc) or from institutions such as the IEEE do not appear to be quite in harmony with one another and with the aforementioned policy entities. For one thing, the engineering concern hinges too heavily around the supply–side technological standpoint, a valuable approach but somehow lacking the multidisciplinary content and coordination necessary for consumers to expect timely tangible results.
Efficiency, Security and two fundamental questions
It is clear that the adequacy of this industry has transcendental social/economical implications; the density of the problem also prevents a simplistic treatment. A first fundamental question is: What the overall efficiency of the power system is? To address such issue three main components can be identified: the supply-side and demand-side components, and last but not least, the market efficiency itself. This latter one is related to the so called dead-weight loss indicator, a measure of the market competitiveness, an entropic notion. Studies carried out by top university groups indicate that this overall efficiency can only be better than fifty per cent today, with the market and demand-side components being mostly the big offenders. The ongoing industry liberalization represents a definite attempt to overcome this serious deficiency.
A second fundamental question relates to the worth of power system security. To fully address this point, under the current environment, it has become imperative to establish what the social economical value of security is; in other words searching for an internalization of this attribute in market pricing terms. It is reasonable to admit that this is formidable task; yet there are some useful concepts, potentially capable of simplifying and shading some light into this process. The key variable appears to be the cost of the unsupplied energy (or demand), a subject that has been under discussion for quite some time now, for the most part in the European Union, though admittedly with mixed results. Nonetheless it does not seem likely for the policy makers here to be dealing consistently with the issue without coming to grips with this crucial magnitude.
An imaginable novel approach stems from an in-depth analysis of the consumer load; particularly about what economists (Hicks et al) call the compensated demand, as opposed to the common uncompensated demand (Marshall). Hicks' function, when available, permits a rational quantification of how much each user class appreciates the energy utilization or lack of thereof. It actually enables the computation of the 'pecuniary compensation' required for doing without power in each case. This is in sharp contrast with the idea that an outage is chiefly a corporate loss of revenue, possibly worthy of a nominal compensation for end-users, at best.
In addition the typical utility has comfortably been sitting too long around the idea of an 'inherent' negligible demand elasticity, characteristic that has been causing a definite supply-side competitive advantage, including potential gaming opportunities. This phenomenon may even be exacerbated under deregulation, as has been experienced in the past.
Consideration of the Hicks-function response can set up a basis for a concerted effort to improve the elasticity problem without resorting to controversial mitigation measures. Indeed the unsupplied energy value, as may be shown, decreases greatly with the elasticity of demand.
Hence this formulation, in combination with an equitable penalty allocation for outages, may well constitute the right market signal for all stakeholders to behave favorably towards a price-responsive electricity use in a more secure network.