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Lester Lave

Carnegie Mellon Electricity Industry Center

www.cmu.edu/electricity


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Carnegie Mellon

Electricity Industry Center (CEIC) Founded in August 2001 after competitive proposals

Long-term core funds: The Sloan Foundation & EPRI

Project funding from industry & government

Co-Directors: Lester Lave & Granger Morgan

Executive Director: Jay Apt

17 Faculty & 23 Ph.D Students in Business,

Engineering & Computer Science schools

Strategic, interdisciplinary examination of industrys

problems and opportunities


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Current Research Areas

Market Structure & Performance

Distributed Energy Resources Advanced Generation & Transmission Technologies

Environmental & Sustainability Issues

Reliability & Security

Supported by:

The Alfred P. Sloan Foundation Tennessee Valley Authority

Electric Power Research Institute U.S. Office of Naval Research

U.S. National Science Foundation McDermott Technology

U.S. Environmental Protection Agency ABBU.S. Department of Energy Alliant Energy

National Rural Electrical Cooperative Association

Pennsylvania Office of Energy & Technology Development

New York State Research & Development Authority


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Market Structure & Performance

Market Design to Control Monopoly Power

Modeling Investment Incentives in

Deregulated Electricity Markets Risk Management in Electricity Markets

Designing complete markets all services

Demand estimation & management

Autonomous Agents that Learn

Valuation of Ancillary Services


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Distributed Energy Resources

Distributed Decision-Making

Engineering-Economics of DER

Regulatory/Institutional issues for DERMarket Evolution

Air Quality & Life Cycle Analysis of DER

Distributed Generation & Microgrids

Interconnect Problems & Standards

Benchmarking Test Systems


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Advanced Generation & Transmission

Modeling Advanced Environmental Controlsin New Generation Plants

Multipollutant Regulation & the Cost of CO2Control via Carbon Capture & Sequestration

The Cost of Regulatory Uncertainty in AirEmissions for a Coal-fired Power Plant

Advanced Transmission Technologies: Cost

& Benefits, Reliability, ControllingCongestion, Investment Incentives

Is It Better to Ship Coal or Electricity?


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Environment & Sustaintability

Life Cycle Assessment of Fuel/Technology

options

Large-Scale Wind Generation Understanding Opposition to New

Transmission Lines

Animal Waste to Power Biomass Cofiring

Reducing CO2 Emissions (2010 to 2050)


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Reliability & Security

Architecture of a Survivable Power Grid Managing Congestion

Modeling a Grid with Merchant Transmission

Survivable Missions

Lessons for Grid Operations from Air Traffic

Control & Other Critical Infrastructures


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Benefits of Opening Electricity

Markets to Competition

A New Competitor has No Obsolete Plants orExcess Manpower or High Labor Costs

They Can Offer Low Prices & Take Business

from Current Company To Survive, Current Company Must Cut Costs

or Force Customers to Pay Their Prices

Bad Decisions Cost Investors, Not Customers BUT New Company Needs TransmissionNo

Simple to Introduce Competition


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Benefits of Joining US Market

Canada & Mexico Have Resources to Sell

Joining the US Market Gets Better Prices

Expanded Generation & Transmission Capacity

Builds Local Infrastructure, Providing More

Energy

Needed Upgrade to Technology & Infrastructure

BUT It may Raise Local Energy Prices & Lead

to Disruptions


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Integrating North American

Electricity Markets

Electricity is Different

A Shortage of Petroleum, Natural Gas, or Coal

is Handled From Inventories. A long Outage

Leads to High Prices & a Few UnhappyConsumers

Electricity has No Storage: Shortages Cause

Massive Blackouts (California 2000, August 14)

Integrating NA Energy Markets has Major

BenefitsBut Also Major CostsAugust 14


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Should Mexico & Canada Join a

NA Electricity Market?

Before Deregulation the Answer was YesOpportunities to Sell Resources at High Price

Economies of Scale in Generation

Financing for Home Infrastructure After the US Market is Restructured, the

Answer is Probably YesBe Careful

A Competitive Market Should Allow Good Pricesfor Resources & Greater Reliability

It Will Help Integrate the Three Economics &

Produce Environmental GainsMeet Kyoto Goals


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Collateral Damage From US

Deregulation Californias Debacle in 2000 Led to High Prices

Throughout the West: Montana, BC, Arizona

This Disrupted the Economy (Aluminum inWashington) & was Costly to Consumers

Deregulation Problems Caused the August 14

Blackout: Major Costs to Ontario Some Previous NE Blackouts Caused by Canada


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Risks & Rewards to Mexico &

Canada From Integration US Restructuring is Imposing Costs & Reducing

Reliability in the USAnd Elsewhere

There Will be Difficult Times Until the

Restructuring Issues are Resolved

Integrating the Energy Markets, Like Integrating

the Economies Opens Mexico & Canada to

Fluctuations in US Markets & Vice Versa

Integration Presents Many Opportunities & Risks


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Should Mexico & Canada Open

Electricity Markets & Integratewith the USA?

Open Markets Should Lower Prices But Impose

Costs on Electricity Company & Workers

Restructuring Must be Careful & Learn From

Experience in UK, Austrailia, California,

Integration has Large Benefits & CostsCareful

of Unsettled US Markets

Perhaps a DC Interface?


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Thank You.


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Some Recent Large Blackouts

11/9/65 Northeast 30 million people

6/5/67 PA-NJ-MD 4 million

5/17/77 Miami 1 million 7/13/77 NYC 9 million

1/1/81 Idaho-Utah-Wyoming 1.5 million

3/27/82 West 1 million


8/24/92 Florida 1 million


8/10/96 West 7.5 million

Jan 98 Qubec 2.3 million

Feb-Apr 98 Auckland 1.3 million

12/8/98 San Francisco million

8/14/03 Great Lakes-NYC 50 million

8/30/03 London million

9/18/03 Tidewater 4 million

9/23/03 Denmark & Sweden 4 million

9/28/03 Italy 57 million

11/7/03 Most of Chile 15 million


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0 5000 10000 15000 20000 25000 30000 35000

P, the size of the power outage in megawatts

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0 5000 10000 15000 20000 25000 30000 35000

P, the size of the power outage in megawatts

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Can Blackouts be Prevented?

The HV part of the system contains 157,000miles, thousands of nodes

Natural disasters: Ice storms, hurricanes,

earthquakes, etc.

Qubec Ice Storm770 transmission towers

Hurricane Andrew300 towers down

Hurricane Isabel3 million without power


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A Solvable Problem

Survivability is the ability of a system to

fulfill its missions, in a timely manner, in

the presence of attacks, failures, oraccidents.

H.F. Lipson & D. A. Fisher, SurvivabilityA New Technical & Business Perspective on Security, Proceedings of the 1999 New Security Paradigms Workshop, Caledon

Hills, Ontario, Sept. 2124, 1999, Association for Computing Machinery, New York, NY, available at http://www.cert.org/research/.


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A simple example

When the power goes out, traffic snarls in urban

cores, making it impossible for emergency vehiclesto get through.

In a normal blackout, this is a problem. If ablackout were part of a terrorist attack, it could bevery serious.

While old style traffic lights required something like150 watts, modern traffic lights that use lightemitting diodes (LEDs) use less than 15 watts.

Combined with solid state electronic controllers,LED traffic lights can be kept running for severaldays on battery back-up.

DHS might consider helping cities with theincremental cost of the batteries & controllers.


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A Solvable Problem

Recognize that blackouts will happen

Reduce the social & economic costs by

assuring that critical missions continue

Traffic lights

Water & sewer pumps

Natural gas pressure

Emergency service systems

Exit from subways & elevators

Crucial economic functions


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What Went Wrong in California?

Everythingevery requirement not met:

Big generators could control price by withholding

supply

No markets for reactive power, etc.

All power in hour ahead marketno day ahead or

long term contracts

System operator assumed that demand completelyinelastic, didnt control transmission, and could not

control fraud


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Curtailing Market Power

To ensure that no firm has the power to raise price& profit by withholding capacity:

Regulate price during high demand Increase generation capacity

Increase transmission capacity

Increase demand response Control firm size by divesting assets

Long-Term contracts


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Transmission Muddles: Operation

Transmission grid designed to get power fromcompanys generators to customers not serve

deregulated market Locational Marginal Prices (LMP) handle

congestion

Kirchhoffs Law makes LMP extremelysensitive to location of supply, demand, &transmission capacitySusceptible to gamingby market participants


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Transmission Muddles: Investment

Dont use LMP to site new transmission!

Merchant transmission => gaming, e.g., railroads

in 1900greenmail & disruption Transmission must be centrally planned,

operated, & maintained

Ownership & control by utilityISO rules?Control by ISOmaintenance, etc. by utility?

Pay for new transmission with LMP plus constantfee per MWhr-mile


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ME

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1990 1992 1994 1996 1998 2000 2002

/kW

h

Residential

Industrial

Maine


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OH

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1990 1992 1994 1996 1998 2000 2002

/kW

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Residential

Industrial

Ohio


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NC

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1990 1992 1994 1996 1998 2000 2002

/kW

hResidential

Industrial

North Carolina


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CA

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1990 1992 1994 1996 1998 2000 2002

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Residential

Industrial

California


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NV

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1990 1992 1994 1996 1998 2000 2002

/kW

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Residential

Industrial

Nevada

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