Richard E. Schuler

Evolution of Organizational Performance and Stability in a Stochastic Environment

In this study of optimal organizational performance, we explore how the extent of interactions, both within and among other organizations, affects group performance and stability in a stochastic environment. We have refined a modeling framework (Kauffman and Johnsens NKC model) so that group size and connections among groups (externalities) can be finely tuned. The search for improved group configurations is modeled as a random walk on a space of possible configurations whereby agents in a group periodically have the opportunity to accept or reject random changes in their characteristics. By controlling which groups have external connections with which other groups, and the magnitude of such connections, we can manipulate the topology of the problem—the web of interactions within and between groups. We present numerical results showing that optimal group size relates to the magnitude of externalities and the accumulated number of random trials. Our main result suggests that for short periods with few trials, large organizations perform best, while for longer time horizons, the advantage accrues to small sized groups with a small number of externalities. However, over these long time horizons, as the extent of external connections increases, modest increases in group size enhances their performance. Under all circumstances, organizations that perform best in the long run fall into a regime of largely stable responses to perturbations, which however, borders on a region of instability.

Testing the effects of price responsive demand on uniform price and soft-cap electricity auctions

Testing auction mechanisms experimentally in a controlled environment provides an inexpensive means for evaluating their relative merits. This paper describes a framework for testing the efficacy of a price-responsive load on a uniform-price last-accepted offer and a soft-cap market. Experimental evidence to date, based on uniform-price market testing has shown an ability of price-responsive load to mitigate high volatility and average price. The paper addresses a process to validate these results as well as our hypothesis that price-responsive load mitigates high soft-cap market price behavior, such as that observed in California.

Econometric analysis of the construction and operating costs of municipal solid waste incinerators

Abstract This multivariate statistical analysis is designed to isolate the effect of size from other variables that influence the underlying cost structure of municipal solid waste incinerators. Hence, the regression models for both construction and operating costs investigate several inherent factors, including design capacity, material and/or energy recovery, air pollution control, ownership, as well as actual and expected operating hours for different technologies. Several econometric model structures are evaluated systemmatically to find the most appropriate functional form for both construction costs and operating costs. The tested functional forms cover multiplicative single equation models, multiplicative recursive equation systems, just or over identified simultaneous systems, nonlinear seeming unrelated regression (SUR) systems. IML and ETS subroutines in SAS package have been applied for solving these models. Nonlinear SUR is selected as the representative model in this paper. The major estimation issues examined are heteroscedasticity, collinearity and the influence of outliers. But the scale economy, cost elasticity, and the interaction between construction and operating costs are also of significance economically. Based on nearly 150 observations, normalizations for different geographic regions and time are conducted and facilities are classified as mass burn waterwall, modular, refuse-derived-fuel (RDF), refractory incinerators and rotary combustors. The results show that it is important to model individual technologies separately to avoid exaggerating the importance of scale economy by overall observations.

The economic impacts of a divisible-load permit system for heavy vehicles

A methodology is demonstrated for analyzing the economic impacts of various weight limits for heavy vehicles through an application to New York State. Truck usage data were gathered from truck operators in 1990-1991 through three seasonal mail surveys, which allowed the collection of sensitive truck usage data while guaranteeing anonymity to the respondents. The benefits of this permit system are primarily lower business costs for those operators who hold permits; in the long-run, part of the savings realized by the truck operators flow to most sectors of the states economy. On the cost side, increased infrastructure damage is assumed to result primarily from increased pavement damage. We find that direct benefits of the permit system (to the transportation industry and its users) exceed its costs (to society) by a factor of 17 to 1. An important finding of this study is the surprising level of non-compliance with permitted weight limits that was reported voluntarily. This may be due to the complexity of the New York state permit system and to the enforcement levels of the weight limits by state and local authorities.

Mapping Energy Futures Using the SuperOPF Planning Tool: An Integrated Engineering, Economic and Environmental Model

Energy futures for modern economies depend critically on the electric power system. Estimating the long-run benefits and costs of proposed energy or environmental policies requires tools that optimize investment in generation, account for physical constraints on the delivery network while maintaining desired reliability, and characterize the adverse impacts of pollutants. An integrated engineering, economic, environmental modeling framework is described (SuperOPF Planning Tool) that maximizes the net expected benefits of electricity production, optimizes retirements and investment in new generation by location, accounts for environmental and other regulations, and includes likely demand responses to resulting price changes. Simulations testing the SuperOPF Planning Tool using a reduced network model of the Northeast power system are described, and they suggest that policies that assess the full cost for energy-use usually result in more effective outcomes in terms of lives saved at lower prices than do regulatory alternatives.

Two-sided Electricity Markets: Self-Healing Systems

High voltage electricity systems may become more reliable under market-based dispatch than they were under cost-based, regulated assignments if customers are faced with real-time prices. As an example, in Australia where all electricity is transacted through a spot energy market without any regulatory price caps, retail suppliers and large customers have installed frequency-sensing devices to turn off or reduce power to designated loads when the system’s frequency falls below a pre-set level. While most of these relay installations were required by the grid managers, some of the automated load-shedding is also purchased as a market service. These mechanisms were put to the test in summer 2004 when the system suddenly lost 3,100 MW of generation. Sufficient load was shed automatically so the system re-stabilized within 30 seconds. In periods when demand exceeds the system’s supply capability, either because of unexpected high demand or supply disturbances, there is an inverse relationship between frequency and the price of electricity. So automatic load-shedding devices could also help buyers avoid price spikes. While there is little experience in the United States with widespread direct customer participation in electricity markets, economic experiments have been conducted at Cornell University with human subjects. These trials of full two-sided electricity markets are cleared subject to the laws of physics over Cornell’s PowerWeb, 30 bus, 6 generator, simulated A.C. power network. The results demonstrate the ability of a small portion (20 percent) of active customers to mute the marketpower exercised by sophisticated players representing the generators, all without regulated price caps or strictures against withholding capacity. Furthermore, simulations of electrical flows on individual lines suggest that the capacity needs of the system per MW of overall demand are up to ten percent smaller with active customer participation, compared to a regulated regime, and that would provide more breathing room for existing facilities. Those line flows are also more predictable when customers are actively engaged in power markets, making the job of dispatching and controlling the system easier. So if we want to reap the full benefits of markets for power in the U.S., including enhanced reliability and robust rapid responses to natural or terrorist inflicted assault, we need to get the customers into the game as full participants.

Reliability, Electric Power, and Public Versus Private Goods: A New Look at the Role of Markets

The economic theory that has been used to support restructuring of the electric power industry has ignored several important technological constraints and public goods that affect the way in which power is delivered. Some of these public goods include voltage, frequency, and reliability of lines. Similarly, engineers, by using security-constrained optimization to incorporate the demand for reliability, have failed to properly define the economic problem. This research attempts to remedy this deficiency through a collaborative effort between economists and engineers to examine the theoretical and empirical properties of a networked power system that provides economically optimal reliability and draw conclusions regarding efficient market design.

The Engineering, Economic and Environmental Electricity Simulation Tool (E4ST): Description and an Illustration of Its Capability and Use as a Planning/Policy Analysis Tool

A new planning tool for analyzing power systems in detail, including the long-run technical, economic and environmental consequences of policy or investment interventions, is now available for download by the public, without charge, at E4ST.com. The Engineering, Economic and Environmental Electricity Simulation Tool and its components are described here, and its accuracy is assessed through predictions of actual LMPs in the Eastern Interconnection. The usefulness of the tool is illustrated by an evaluation of the commercial feasibility of a proposed electric transmission line connecting Hydro Quebec to New York City, the Champlain-Hudson Power Express.

COLLECTING USAGE DATA FOR ANALYZING A HEAVY-VEHICLE, DIVISIBLE-LOAD PERMIT SYSTEM

The collection of truck usage data for performing a benefit-cost analysis of the New York State Divisible-Load Permit System is described. To motivate the data collection requirements, the procedures used for estimating both infrastructure costs and economic benefits are briefly described. The survey procedure is summarized, as are data gathered on permitted vehicles, operator characteristics, and truck usage. Advantages and shortcomings of the methodology for collecting data are reviewed from the perspective of analyzing divisible-load permit systems for heavy vehicles. The overall study is one of the first attempts to assess the economic impact of permit systems based on actual usage data provided voluntarily by truck operators through seasonal mail surveys. As illustrated by the authors in a 1994 report, the economic benefits of a permit system for trucks hauling heavy divisible loads can be substantial. The collected survey data were adequate for providing order-of-magnitude estimates of benefits and ...

A Detailed Power System Planning Model: Estimating the Long-Run Impact of Carbon-Reducing Policies

In this paper, a much more detailed representation of the nations electricity system than has been traditionally used in policy models is employed. This detailed representation greatly increases the computational difficulty of obtaining optimal solutions, but is necessary to accurately model the location of new investment in generation. Given the proposed regulation of CO2 emissions from US power plants, an examination of economically efficient policies for reducing these emissions is warranted. The model incorporates realistic physical constraints, investment and retirement of generation, and price-responsive load to simulate the effects of policies for limiting CO2 emissions over a twenty-year forecast horizon. Using network reductions for each of the three electric system regions in the U.S. And Canada, an optimal economic dispatch, that satisfies reliability criteria, is assigned for 12 typical hour-types in each year. Three scenarios are modeled that consider subsidies for renewables and either CO2 emissions regulation on new investment or cap-and-trade. High and low gas price trends are also simulated and have large effects on prices of electricity but small impacts on CO2 emissions. Low gas prices with cap-and-trade reduce CO2 emissions the most, large subsidies for renewables alone do not reduce carbon emissions much below existing levels. Extensive retirement of coal-fired power plants occurs in all cases.