Reliant Energy is pushing to have in operation by mid-June a retail “negawatts” exchange program that it claims will significantly reduce the threat of forced electric outages this summer in the out-of-control California market and 11 other states that make up the Western Interconnection.

The proposal, which Reliant has been shopping around to state regulators, state/federal politicians and consumer groups for about a month now, seeks to establish a mechanism through which industrial and commercial customers in one power control area could volunteer (at the right price) to reduce their power usage, and then have the megawatts sent to customers in another control area that is experiencing a power deficit. Under the program, a customer that voluntarily reduces his normal load of 100 MWs to 60 MWs would create 40 MWs of “negawatts.”

As for the program’s key benefits, “it’s going to take and prioritize who takes the [power] interruptions. Instead of having a forced rotating blackout…it transfers [the option] to customers who volunteer to take the outage,” said John H. Stout, senior vice president of asset commercialization for the Reliant Energy Wholesale Group, during a press briefing at GasMart/Power 2001 on Friday.

He sees the “negawatts” exchange program being administered by a private company, such as the Automated Power Exhange (APX) in Santa Clara, CA, or Apogee Software, which already has a software program called “The Demand Exchange.” Both companies have expressed an interest in the Reliant proposal, as well as other vendors, Stout said. It also has gotten favorable reviews from consumer groups such as the California Manufacturing Technology Association, Alliance to Save Energy and ELCON, he noted.

“The big hurdle in getting this program implemented is that most states have regulatory policies prohibit retail customers from reselling power in the wholesale market,” he noted. “There’s a good reason for that [rule]. But we’ve got a crisis on hour hands, and this is one of the best ways to fix that crisis.” Stout said Reliant has been working with the governors of several western states to rescind the regulatory prohibition against the resale of power. In the event its efforts fail, the company will have to obtain a “global solution” in the form of congressional legislation to remove the roadblock, he said.

Stout called on California Gov. Gray Davis to take a “leadership role” in convincing the other western governors to support Reliant’s proposal. Davis had a “generally positive” reaction to the “negawatts” program during a meeting last week with Reliant and other major merchant generators and marketers, he said.

At that same meeting, Stout noted Davis suggested that if Reliant and others backed his efforts to get the MOU involving the state’s purchase of Southern California Edison’s transmission assets through the California Legislature, the companies would stand a better chance of being paid this year for past power sales — although it would be at a “haircut” rate of only 70 cents on the dollar.

“Our reaction to that is it’s going to be real hard to give haircuts when there’s no electricity to run the clippers,” he told reporters at the Tampa, FL, gathering. “The notion of a 30% [cut] in payment…is well below cost. There’s no way that we can even start talking about something like that.” Stout said such a deal would only be a “halfway settlement” because it wouldn’t resolve any the litigation pending against Reliant and other merchant generators/marketers. “That’s what makes it so difficult to rationalize.”

He thinks Reliant would stand a better chance before a judge. “I think our chances in a courthouse are pretty good because I think the evidence will show that we did not engage in price gouging, withholding.”

Stout talked at length last week about the concept behind the “negawatts” exchange program and how it would work. “What we’re trying to set up is just a simple extension of the…concept of being able to buy emergency supply, but [with] emergency negawatts [instead]. No mechanism exists for that right now, and so we have proposed a structure that would set up a permanent administrator that would do three things. He would handle the bidding process [where] customers can bid in an amount [of load] that they wish to curtail and a price that they would curtail it for hour-by-hour, just like they bid into the hourly market in the ISO and PX.

“Second, that [administrator] would be a dispatch clearinghouse when someone — it doesn’t have to be California, it could be any [state] in the West — gets in trouble. They could pick up the phone and say ‘hey, I need some negawatts’…What the [administrator] does is the same thing the ISO does when they dispatch energy. They look at this stack of bids, and they sort them from lowest price to highest price.”

The administrator also has to “check and make sure the transmission grid…can get that power from Point A to Point B. If they can’t, they may have to scratch one of them [bids] off and move to the next higher one in the stack. They then contact the customer that needs to interrupt [their demand]. They also contact the…control area that the customer is in.” The control area handles all the scheduling and power flows to keep supply and demand in balance in the area.

“The control area is going to take the reduction in demand, and turn it into what’s called an ‘export schedule.’ They’re going to tell their computer ‘don’t reduce the generation; keep the generation the same, and send that power out on the grid.’ Then, the control area that’s [at a] deficit — the one that made the phone call in the first place — simply schedules that export into their control area by reducing their generation. They suck it in, and bingo the power…now ends up in the control area that was deficit.”

Under the “negawatts” exchange program, the traditional utility or other load-serving entities that served the original customer would be paid the same as if the demand had never been interrupted, Stout said.

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