FERC, Principles for Efficient and Reliable Reactive Power Supply and Consumption, 2004.Abstract


    Almost all bulk electric power in the United States is generated, transported and consumed in an alternating current (AC) network. Elements of AC systems produce and consume two kinds of power: real power (measured in watts) and reactive power (measured in volt-amperes reactive, or var). Real power accomplishes useful work (e.g., running motors and lighting lamps). Reactive power supports the voltages that must be controlled for system reliability.

    Reactive power supply is essential for reliably operating the electric transmission system. Inadequate reactive power has led to voltage collapses and has been a major cause of several recent major power outages worldwide. And while the August 2003 blackout in the United States and Canada was not due to a voltage collapse as that term has been traditionally used, the final report of the U.S.-Canada Power System Outage Task Force (April 2004) said that “insufficient reactive power was an issue in the blackout.” Dynamic capacitive reactive power supplies were exhausted in the period leading up to the blackout.

    Bessembinder, Hendrik, and Michael Lemmon. “Gains From Trade Under Uncertainty: The Case of Electric Power Markets.” In, 2004.Abstract

    The rapid growth in energy trading and movement towards deregulation of electricity markets have come to a halt in the wake of assertions that western U.S. energy markets were manipulated. This paper refocuses attention on the potential efficiency gains from competitive wholesale power trading, showing that for any given level of average demand, retail electricity prices will be lower if electricity is traded in competitive wholesale markets than if electricity is delivered by integrated producer-retailers. Wholesale power trading allows for the diversification of demand risk, and the greatest efficiency gains accrue when power demand is least correlated across markets and when there is substantial geographic variation in expected demand. Simulation evidence indicates that real time power trading could reduce retail prices by conservative estimates of 3 to 4% on average in the U.S., and that the combination of forward and real time trading could reduce prices by 6 to 10% or more. This analysis indicates that economic efficiency would be best served by policy aimed at ensuring that power markets are indeed competitive, and that sufficient transmission capacity exists for profitable power trades to be completed.