Regulation of the Electric Power Sector

(2011-2012) Permanent Homework (Final statement) Homework 1.

Select one location in the galaxy and, implicitly, the corresponding power system supplying it, preferably within a country or region in the provided list (see below), but not necessarily. If the system of your choice is not included in the list, you will have to discuss with the instructor if it is an adequate system for the objectives of the course. You may choose your own country, although, if you are already very familiar with it, it is not a good idea. During the course you will have to learn about this power system and to analyze it under different viewpoints, perhaps also suggesting improvements to its regulatory framework. It will be used in the term paper, but this homework is NOT the term paper. This first assignment just consists of making your choice, providing some general description, and writing a couple of pages at most (Times New Roman 11 point or similar, single space) indicating which is your choice, if there is any special reason for it and the sources of information that you have found so far. Use the references and websites in the Resources document in SIFO to learn more about the characteristics of the different systems that could be of interest to you. You may reconsider your choice later (but not too late). You can also be advised to modify your choice if there are too many coincidences with your classmates. List of recommended power systems: In the USA: New England, PJM, New York, Texas, California, MISO, South West Power Pool. Canada: Ontario, Alberta, Quebec. Australia: New South Wales, Australia (National Electricity Market). New Zealand. Japan. China. India. Central American Regional Market. Chile, Argentina, Brazil, Colombia, Peru. South Africa. France, Germany, Hungary, Ireland, Italy, Poland, Scandinavian countries (NordPool), Spain (MIBEL), The Netherlands, UK. Other European countries could be also adequate.

Homework 2. The Spanish Electricity Act

No written text is requested.

Homework 3. Generation and wholesale markets.

Announced: Monday October 17th. Due: Wednesday October 31st.. Describe the wholesale electricity market in the country or system that you have chosen. Organize your answer by addressing the following issues:

Identify within the corresponding Electricity Act (or the highest level norm that applies) those articles that correspond to the functioning and regulation of the wholesale electricity market. Identify the secondary regulation that describes in more detail the rules and organization of the wholesale market: type of market, transactions that are allowed in this market, agents that can participate, existence of organized trading platforms, allocation of the roles of system operation and market operation, rules for the functioning of the spot (daily, typically) market, how the prices of these markets are computed, type of auctions that is used (simple or complex bids, any other features), procedure of determination and allocation of the operating reserves, any intraday markets, basic norms of the balancing market. For each one of these items include a brief description that can be sufficient for somebody who does not know this market to understand how it works, ignoring the details (market rules or trading codes typically have 500 pages or more)1. If this information is available, describe the motivation that led to the creation of this market. Provide some description of how this wholesale market has functioned since it was created or during the last few years: Adequacy of its structure (number and size of the agents, private or public ownership, any other relevant characteristic of the agents, mergers and acquisitions that have taken place), role of the system operator, market operator, transmission owners, governance of the market, prices and volumes in the several markets (spot, reserves, congestion, intraday, balancing), imports and exports, any significant incidents, existence (proved or supposed) of market power abuse, any other characteristic trait. Provide the list of relevant references that you have used to answer this question. If, for some reason, you do not find information on your system to answer any of the items above, do your best effort in filling the gaps with your opinions (please, indicate explicitly when you are not describing what actually happens in the system of your choice). <We are not asking for more than 4 pages, single space, Times or equivalent point 12. You could add more, for your benefit, without necessarily improving your grade.>

Homework 4. Distribution.
Announced: Monday October 24th. Due: Wednesday November 2nd. (Note that the idea is that you gradually build a document, piece by piece, on the regulation in the power system that you have chosen. You must add gradually all the pieces together in a single document, extending what you have already written, where you can show that you have a sufficient understanding of the functioning and regulation of this system). Now you have to describe the distribution regulation in the power system of your choice, taking into account the topics that have been presented in class. Note that several distribution utilities may exist in your system. Pick up just one, the one corresponding to the location you have chosen in the galaxy. The following procedure is suggested: Find in the corresponding Electricity Act (or the highest level norm that applies) those articles that correspond with the distribution activity and its regulation. Then also find the secondary regulation (e.g. decrees, ministerial orders, technical regulations) that develops in more detail the regulation of distribution. The regulation may be written also in a license, established individually for each company. You may comment on the following topics: o Distribution companies in the country: number, size (type and size of the supplied region and number of customers), private or public ownership.

To be added once we cover the module on the transmission network: How this market handles network losses and congestions. If you already understand it you may start including this information now.

Legal procedures that govern the exercise of the distribution activity: distribution licenses and specific conditions; accounting, legal or ownership unbundling; administrative procedures to authorize distribution installations, etc. Mechanism for setting annual distribution revenues: cost of service regulation, or price cap, or revenue cap formulas. The procedures that the regulator uses to establish the remuneration in each rate case or price control period. Tariffs. A first idea on how distribution revenues are reflected in the final customer tariffs. Any network connection charges. Quality of service. Is there any explicit quality of service regulation? Are penalties or credits being applied to the distribution company if it does not meet or exceeds any prescribed quality standards? Network losses. Is there any mechanism implemented to provide incentives to distribution companies to reduce network losses? If this is the case, what procedure is followed by the regulator to set the level of standard network losses? Distributed generation. Has any specific regulation been developed to connect distributed generation to distribution networks? Do distributed generators pay connection or use-of-system charges? Which are the most relevant issues that affect distributors regarding connection of distributed generation? Provide the list of relevant references that you have used to answer this question.

o o

It is understood that it may be difficult in some cases to find the documents (when they exist) that contain the necessary information to answer these questions. We have not covered tariffs in class yet, so the necessary background has not been provided. Make your best effort; explain what you have obtained and, if you have not found enough information, answer the questions by explaining what you consider that should be done, instead of what is actually done. Make it clear whether you are describing what exists or what you recommend to do.

Homework 5. Regulation of monopolies. The RPI-X method.

The statement was separately provided.

Homework 6. The retail market and tariffs for end consumers

Announced: Tuesday November 22nd. Due: Wednesday December 7th. Briefly describe the basic characteristics of the retail market in the power system of your choice. Are there default tariffs? And any last resource tariff scheme? Find information on the tariffs that apply to end consumers in the power system that you have chosen. What are the components of the tariffs that the end consumers receive in the invoices? Is it clear what the different components mean? Do you think that the design of these tariffs is correct? As a bonus in this question (I know it is difficult, sometimes impossible, to find this information): Could you explain how the default tariff, or any applicable tariff in your system, is computed or the principles that are used in its calculation?

Homework 7. Transmission
Announced: Tuesday November 22nd. Due: Wednesday December 14th.

Describe the regulation of the transmission activity in the country or system that you have chosen. Organize your answer by addressing the following issues: Select within the corresponding Electricity Act (or the highest level norm that applies) those articles that correspond to the functioning and regulation of the transmission activity. Then, identify the secondary regulation that describes in more detail the rules and organization of the transmission activity: o Investment: How is the transmission network planned? Who is responsible for preparing / approving the plan? How is the transmission activity remunerated? Does this scheme correspond to any of the approaches discussed in class? Pricing: A) Is there any impact of the network on the energy prices? How is the transmission network taken into account in the determination of the energy prices and the dispatch of the generators? B) How are the transmission tariffs computed? Is there any locational signal or time differentiation in the transmission tariffs?

o Access:

A) What method of generalized (and local, if different) congestion management is used in your system?

For each one of these items include a brief description that can be sufficient for somebody who does not know this market to understand how it works, ignoring the details. Give your opinion on the adequacy of the approach with respect to sound regulatory principles.

Homework 8. Adequacy and firmness in electricity generation

Announced: Tuesday November 22nd. Due: Wednesday December 22nd.

Describe the method (if any) that has been adopted in the power system of your choice to promote investment in new generation capacity and to guarantee the availability of these plants, when needed. No method is also a method. Provide your evaluation of this method. Describe the approach that you consider is most adequate to achieve an adequate level of generation capacity in your system as well as firmness in its operation. Justify your answer.
For all topics: Provide the list of relevant references that you have used to answer each one of these questions. If, for some reason, you do not find information on your system to answer any of the items above, do your best effort in filling the gaps with your opinions (please, indicate explicitly when you are not describing what actually happens in the system of your choice). I am not asking for more than 2 pages, single space, per question, using Times or equivalent, point 12. You could add more pages, for your benefit, without necessarily improving your grade. You may update the answers to previous questions until the last day of delivery (December 22nd).