[BETA] Fortnightly

A couple weeks ago, on a beautiful Sunday morning, I picked up my briefcase and wandered down to the Potomac river shoreline to catch up on my summer reading list. There, on the Virginia side, gazing across the river at the Lincoln Memorial, Washington Monument, and Capitol dome, I gathered strength to tackle a foot-high mound of paper. Buried inside were comments filed by a dozen-plus utilities and industry groups on the Notice of Proposed Rulemaking (NOPR) on electric transmission and stranded investment issued last March by the Federal Energy Regulatory Commission (FERC).

I started to plough through it: Commonwealth Edison (Edison), Pacific Gas & Electric (PG&E), San Diego Gas & Electric (SDG&E), Southern California Edison (SCE), Wisconsin Power & Light (WP&L), Edison Electric Institute (EEI), Electric Generation Association (EGA), National Independent Energy Producers (NIEP), American Public Power Association (APPA), National Rural Electric Co-op. Association (NRECA), Electric Consumers Resource Council (ELCON), Transmission Access Policy Study Group (TAPS), and the Louisiana Energy & Power Authority (LEPA).

I was still reading 12 hours later when the mosquitos and jet exhaust sent me home.

Wired

The FERC NOPR essentially creates a new "wires" business in electric transmission. Where do the boundaries lie?

Edison argues that "Most of the ancillary services identified in the NOPR are generation services," and thus should not play a role in comparability. Edison says competitors will "game" the system if transmission owners must devote a portion of generation to ancillary services: "For example, a transmission customer may obtain generation ancillary services at FERC-regulated rates, freeing its own generation for sale at market-based rates."

The California "PoolCo" (WEPEX (em The Western Electric Power Exchange) will not start up until 1997. Thus, SCE and SDG&E claim they face a conflict. They must file or accept the FERC's pro forma tariffs with contract-path pricing for the short term, even though they will later cede transmission to WEPEX and its "independent system operator." WEPEX would dispatch generating plants outside bid order to minimize transmission constraints, with marginal-cost transmission pricing. PG&E does not mention WEPEX, but also envisions control of the grid transferred to an independent operator. Outside California, WP&L also recommends a pool structure with marginal-cost transmission rates.

"Arguably, each of the major interconnections (em Western Systems Coordinating Council, Eastern, and ERCOT (Texas) (em could be consolidated into single transmission providers." That comment comes from APPA.

Good Intentions

As the FERC notes at NOPR page 235, "We will watch with interest" as the states address retail stranded costs. That passive policy did not deter comments.

Stranded-cost recovery collides head on with the 1994 Cajun Electric case. As ELCON puts it, "Generation-based stranded costs cannot be placed on the wires." But advocates for cost recovery answered with their own "good intentions" defense: Since the FERC's NOPR removes market power from transmission, regulators can charge transmission for stranded investment.

WP&L comes out against full, guaranteed recovery of all stranded investment, claiming it would favor high-cost utilities and slow down the competitive transition: "Full recovery of stranded costs comes at much too high a societal cost." ELCON suggests