System of Governance

On 2013 February 27 & 28, I attended the National Research Council’s workshop on “Terrorism and the Electric Power Delivery System.” Though “terrorism” was in the title of the report issued November 2012, the issues were as applicable to natural disasters as to terrorist attacks. In regard to problems on the electric delivery system I was reminded of the Yogi Berra quip, “It’s déjà vu all over again.” Except, I kept thinking, “It’s déjà vu all over again, and again, and again… .”

During the final session of the workshop, Granger Morgan of Carnegie Melon University, the NRC panel chair, said that microgrids could only work if local utilities were disenfranchised. I had just moved up from the audience to the panel table to pass a note to Richard Schuler of Cornell University and took advantage of sitting at a microphone to challenge the need to disenfranchise local utilities in order to have effective microgrids. My thesis is that the benefits of microgrids can be achieved by real time pricing of electricity imbalances within the footprint of the microgrid, where that real time market for imbalances is operated by the local wires company. I wrote about the concept four years ago in “The WOLF in Pricing: How the Concept of Plug, Play, and Pay Would Work for Microgrids”, IEEE Power & Energy Magazine, January/February 2009[i] and in “Microgrids And Financial Affairs – Creating A Value-Based Real-Time Price For Electricity,” Cogeneration and On-Site Power Production, September, 2007[ii]. The benefits of self generation such as a combined heat and power plant can be retained by the participants within the footprint through bilateral hedging, with the actual transactions being with the franchised utility. I note that Granger Morgan’s Carnegie Mellon University is in Pennsylvania, a retail access state, and is in the footprint of PJM, an ISO that operates such a real time market. “Déjà vu.”

I wanted to pass a note to Richard Schuler because he had commented that Australian industrial consumers had noticed that bulk power prices varied inversely with frequency, mentioning a study that he had seen from the mid 1990s. I wanted to get a reference to that study because in the 1980s I had proposed to automate the concept of pricing unscheduled flows of electricity, setting the price the same way, by the price varying inversely with frequency.  The concept of prices varying inversely with frequency is simply illustrated in the first figure, which somewhat replicates the graph Richard Schuler drew for me to illustrate his memory of the findings in Australia.  My first published paper on the topic was “Tie Riding Freeloaders–The True Impediment to Transmission Access,” Public Utilities Fortnightly, 1989 December 21.  So, “Déjà vu all over again.”

Inverse Relation between Prices and Frequency

Richard Schuler made an aside to me after my comment on microgrids about the need to increase the capacity of the wires between pairs of participants on the microgrid because of the size of some distributed generation projects. Such upgrades are part of the responsibility of a franchised utility, but until such upgrades are made and paid for, there needs to be a way to extend the dynamic pricing to include the dynamic use of wires, as I wrote in “Dynamic Pricing: Using Smart Meters to Solve Electric Vehicles Related Distribution Overloads,” Metering International, Issue 3, 2010. Now, truly, “Déjà vu all over again, and again.”

Terry Boston of PJM Interconnection (and perhaps others) repeatedly commented on the need to control frequency and voltage.  When FERC was investigating the concept of ancillary services in the mid 1990s, one pundit said there were 31 flavors of ancillary services.  I wrote “Thirty-One Flavors or Two Flavors Packaged Thirty-One Ways: Unbundling Electricity Service” The National Regulatory Research Institute Quarterly Bulletin, Summer 1996.  The two flavors I identified were active and reactive power which respectively control frequency and voltage. “Déjà vu all over again, and again, and again.”

I believe that microgrids would have the most value during the islanding of the electricity system, which might be the result of terrorism or a natural disaster. Sue Tierney of Analysis Group said that we need a system of governance.  I say that a real time pricing system would provide such a system of governance while the system is stressed, such as by a terrorist attack or by a natural disaster.

David Kaufman of DHS/Federal Emergency Management Agency asked what private actors need from the government, after all, 44 of the top 100 economies in the world are private companies and during emergencies private actors often provide much of the relief.  I believe that the government needs to allow and perhaps operate a system of real time prices while electric systems are operating on an island mode.  David Kaufman also told the story of visiting Haiti after the earthquake and being amazed by the entrepreneurship of kids.  They took batteries from abandoned cars and provided a cell phone charging service.  Batteries could be used on a microgrid during an emergency if appropriate real time prices were available for charging and discharging the battery.

Miles Keogh of the National Association of Regulatory Utility Commissioners said that better competitive markets are very important over short periods of time, after which other systems need to take over.  The real time pricing mechanism that I described in many of my papers could function well on an island electric system, at least until the island was reconnected to the grid and another pricing mechanism could take over.

Following Terry Boston’s admonition to control frequency and voltage and using the concept mentioned by Richard Schuler, I say that we can have a system of prices that vary inversely with frequency.  As I discuss in various papers including “Markets Instead of Penalties: Creating a Common Market for Wind and for Energy Storage Systems,” 8th CMU Electricity Conference: Data-Driven Management for Sustainable Electric Energy Systems, Carnegie Mellon University, Electrical & Computer Engineering and Engineering Public Policy Departments, Pittsburgh, Pennsylvania, 2012 March 12-14, my current thinking is that the shape of the inverse relation between prices and frequency should be a negative hyperbolic sine, such as presented in the next figure.  The hyperbolic sine is symmetrical about a price of zero and in this case a frequency of 60 Hertz.  The price needs to be offset from zero, such as with a price that varies inversely with time error.


The hyperbolic sine gets the price high enough to incent private actors who own backup generators to dump electricity into the island grid when frequency is perilously low.  I note that backup generators are notoriously expensive to operate, especially when the replacement of fuel is problematic.  If the price is changing every minute or every five minutes, the price will also drop when there are too many such backup generators or too many solar voltaic systems on the line.  The hyperbolic sine will also push the price negative when system frequency gets to be too high.  This swing in prices between high and low (or negative) would provide an incentive for the batteries to discharge and charge, as I wrote last year in “Reply Comments Of Mark B. Lively, Utility Economic Engineers, On The Need To Create A Program To Price Imbalances,” Rulemaking 10-12-007: Order Instituting Rulemaking Pursuant To Assembly Bill 2514 To Consider The Adoption Of Procurement Targets For Viable And Cost-Effective Energy Storage Systems, Public Utilities Commission Of The State Of California, 2012 February 13.

As I said, “It’s déjà vu all over again, and again, and again … .”

[i] Most of the articles, papers, and comments identified in this blog are available on my website,