Efficient and Reliable Reactive Power Supply and Consumption --Insights from an Integrated Program of Engineering and EconomicResearch

In 2005, the Federal Energy Regulatory Commission (FERC) began discussing regulatory policy for reactive-power procurement and pricing in competitive electricity markets. This paper summarizes findings from a unique, interdisciplinary program of public-interest research that lays a formal foundation for evaluating aspects of FERC staff recommendations and offers early insights that should be useful in guiding policy implementation, specifically by: (1) clarifying the consumers and economic characteristics of reactive power as a basis for creating incentives to appropriately price it, (2) defining specific challenges in creating a competitive market for reactive power as well as new tools needed to help ensure such a market functions efficiently, and (3) demonstrating the importance of accounting for the physical characteristics of the transmission network in planning for reactive power and avoiding the exercise of market power by suppliers.