Q2. Assume that the four utilities of Q1 are members of a power pool. Each utility submits quotations to the pool to sell successive blocks of 25 or 50 MW and bids to purchase blocks of 25 or 50 MW. In furnishing these data to the pool, assume that the prices quoted are the average incremental costs for the block. The pool matching rules are as follows.
Rule 1. Quotations to sell and bids to buy are matched only wherever there is a direct connection between the quoting and bidding company.
Rule 2. Transactions are arranged in a priority order where the lowest remaining incremental cost for the quoting area is matched with the highest decremental cost for the bidding areas. [That is, lowest available incremental cost energy available for sale is matched with the area with the greatest available potential incremental cost savings (= decremental cost).]
Rule 3. “Matches” may be made for all or part of a block. The remainder of the block must be used, if possible, before the next block is utilized. Matching will cease when the absolute value of the difference between bids and offers drops below 0.33 $/MWh.
Rule 4. No utility may be both a buyer and a seller in any given hour.
Rule 5. The price per MWh for each matched transaction is one-half the sum of the absolute values of the incremental and decremental costs.
For this problem, assume that bids and offers are supplied to the pool by each utility as follows.
Area Offers to Sell Bids to Buy
1 100 MW in 25 MW blocks 100 MW in 25MW blocks
2 200 MW in 50 MW blocks None
3 None 200 MW in 50 MW blocks
4 25 MW 25 MW
a. Set up the pool matching system and establish the transactions that can take place and the price of each.
b. Assume that all feasible transactions take place and find the net production cost to each area and the pool.