ABSTRACT
Electricity stands out in that, unlike virtually every other commodity, disaster can strike unless producers supply exactly the amount that people want to buy at any given time. Keeping power production and use in line—load balancing—will require the active involvement of generators, transmission companies, local distributors, and customers, as well as the regulators that oversee the industry. In implementing electricity restructuring, policymakers should consider how to guarantee the provision of ancillary services needed to keep loads balanced on a minute-by-minute basis and to provide emergency power when generators or transmission lines unexpectedly fail or demand is unexpectedly great.
A first question is whether each generation company should be responsible for keeping its own power supply in balance with its own customers’ desires. Because failure to meet power demand causes a breakdown of the system as a whole, and not just a blackout to that company’s customers, letting the market take care of it may not suffice. Generators may need to meet standards for maintaining power and having reserves available, or they may need to be held liable when their inability to meet demand brings down the larger grid. If those prove inadequate, distribution and transmission companies may need to take on the responsibility of providing ancillary services and holding power in reserve.
Involving grid operators in the business of maintaining loads has led many states to involve them in the overall management of power markets, through taking bids from producers and users and dispatching generators as needed. The grid need not be involved in this aspect to control generation costs; the electricity market, like any other, can handle that through letting generators compete for customers. But whether such a market is compatible with keeping loads balanced and systems secure is perhaps the crucial question facing electricity policymakers.
