A New M.S. Degree That Combines Electrical Power Engineering And Finance

The purpose of this paper is to describe both the content and the delivery method of a new M.S. degree program that combines electrical power engineering and finance. This program is designed to produce M.S. electrical engineers who are prepared for the emerging competitive electrical energy industry. With support from the N.S.F. CRCD program we are implementing this degree program, and we also are developing the material for the two new key courses and a simulator that will be made available to other universities on the web. The paper consists of: a brief description of the changes that are taking place in the electrical energy industry; their effect on the demand for graduates; the curriculum that we are developing; and a description of the two courses and the simulator that we are developing. We also briefly describe our experiments with delivery methods in anticipation of placing material on the web. I. The Changing Electrical Energy Industry The introduction of competition is the most significant change that is affecting the sale and production of electric energy. On the sales side, energy companies will eventually compete in a nation-wide market for electricity. Competition already exists at the wholesale level where energy companies buy and sell power from one another at market prices to eliminate expected and unexpected imbalances in load and capacity. Eventually, competition will extend to the retail market in which electricity is sold to businesses and residences. Competition will affect the production of electricity as well. First, energy companies will become more sensitive to the performance and uncertainty of their equipment, fuel, and capital costs because their reduced, volatile revenues may not cover these costs, and they can no longer simply pass them along to their customers. Second, energy companies will begin recognizing the opportunity costs of providing one service, say generation, in lieu of providing another service, say ancillary services, because they are able to choose the type of service they’ll provide to maximize profit in a competitive market. The importance of these considerations will intensify the need for power system plans and resource schedules that incorporate the best engineering and financial principles and practices. Both scheduling and planning require the integration of engineering knowledge about the physical characteristics of the generators and financial knowledge about the financial tools that can be used to aid in power production and delivery. For example, if a company acquires a lease of a generator for a period of time, it will probably reduce the risk if the company also shorts a forward contract for power delivery. P ge 671.1 Proceedings of the 2001 American Society for Engineering Education Annual Conference & Exposition Copyright 2001, American Society for Engineering Education II. Relationship between the Changes in the Industry and our Curriculum To compete in this emerging industry, the electrical companies are presently hiring people who are experienced at trading other commodities such as natural gas to supplement the engineers who can operate the power plants. Planning has changed from adding generators to “serve the load” to building, buying or leasing generators to “make a profit”. In addition to coming from two different cultures where risk is appreciated or abhorred, the traders and the engineers come from two different backgrounds of knowledge base. Thus we concluded that a program of study that combines electrical power engineering and finance would be very useful education. Most of the firms that we contacted agreed with us. Thus they agreed to support our proposal to the N.S.F. to develop such a curriculum. III. Outline of Proposed Curriculum The program leading to a Master of Science degree in Electrical Engineering with specialization in electric power systems comprises 36 hours of course work. Required Courses (18 hours -3 credit hours per course) Analysis of Electrical Transmission (significant revision of existing course) Generation Resource Scheduling and Portfolio Optimization for Energy Systems (new course) Generation Resource Planning for Energy Systems (new course) Financial Administration of the Firm (existing course) Derivative Securities and Markets (existing course) Financial Engineering (new course) Elective Courses in Engineering, Mathematics, or Physics (18 hours). Possibilities include: Random Signals; Real Analysis; Control Theory; Linear Algebra; Communications Theory; Digital Systems; Probability and Statistics. Internships will be required of all students. The students will be required to write a report on their internship experience. The Two New Courses that Combine Engineering and Finance: Generation Resource Scheduling and Portfolio Optimization for Energy Systems (3 credit hours) This course prepares engineering students to (a) optimally schedule energy system resources (e.g. fuel, generation, transmission, pipeline) to meet committed obligations and participate in energy market trading; (b) optimally manage a trading portfolio which contains positions in generation assets, forward/option contracts of various energy products (e.g. electric energy, electric reserve, fuel); and (c) systematically assess and manage operational and market risks. The contents of this course are designed to focus on operational profit-maximization strategies for energy companies in a risky market environment over a time horizon up to a month. Topics include: market-based scheduling of generation (energy and reserve), fuel, transmission contracts, emissions; energy/reserve bidding strategy; optimization, risk assessment, and risk management of trading portfolios. This course will include extensive “real-world” case studies for each of the covered topics. The teaching materials include technical papers, cases, and a Page 671.2 Proceedings of the 2001 American Society for Engineering Education Annual Conference & Exposition Copyright 2001, American Society for Engineering Education state-of-the-art teaching simulator. The prerequisite for this course is Analysis of Electrical Transmission.