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Power Pool Politics: How New England Agreed to an ISO

Fortnightly Magazine - February 15 1997

essential ancillary services were provided by NEPOOL, except for reactive demand, which was supplied locally.

Transmission access was problematic, however, even though some owners, notably Northeast Utilities and Central Maine Power, had built lines in excess of need and derived significant revenues from wheeling for others. Certain transmission customers faced high costs for access to competitive power supplies because of highly pancaked rates. Transmission from Connecticut to Maine could cross four systems.

Thus, the keystone of a New England RTG lay in regional pricing. In this case, the parties developed a two-tiered pricing regime.

Regional Network Service. At the regional level, a single, regional network service rate will cover all so-called "pool transmission facilities," or PTF (em essentially all nonradial facilities 69 kilovolts and higher. The RNS rate is a non-pancaked formula rate of about $15.61 per kilowatt-year, which provides access to all parts of the NEPOOL grid. However, each transmission provider is allowed to vary from the regional average by as much as 30 percent, reflecting differences in its costs from the average.

RNS includes all types of transmission: firm, nonfirm, network, point-to-point and ancillary services. All loads in the NEPOOL control area must pay the RNS rate or leave the control area. Because loads pay for transmission, all generation is on equal competitive footing. Eventually, all new PTF will be financed regionally, by load, at a single regional rate, even though certain owners of current facilities charge different RNS rates, which are grandfathered for a transitional period.

NEPOOL will distribute RNS revenues according to the PTF transmission revenue requirement of providers. Thus, when an average rate is used, subsidies will flow from the customers of some transmission providers to others.

Transactions through NEPOOL or out of the control area, pay the full regional-average RNS rate. Revenues are distributed to transmission providers on a megawatts-per-mile basis, in accordance with an agreed-upon transmission matrix for the region, which recognizes major parallel flows.

While RNS provides for simple, nondiscriminatory transmission pricing, it cannot deal with congestion. NEPOOL has promised FERC to have such a system by July 1, 1997. (See sidebar, "NEPOOL's Future.") The system would allow transmission capacity to be reserved, at an added cost, to reduce congestion-pricing. For transactions subject to congestion pricing, NEPOOL likely will determine cost based upon the market price of power used out of merit order (em i.e., lowest available cost.

Local Network Service. The second tier is called local network service, or LNS, and provides service on all transmission facilities not classified as PTF. (Distribution facilities may be subject to an additional charge.) Each local network sets its own rate, with its own LNS tariff. With the exception of a local point-to-point (LPTP) rate to connect generators to the PTF, all local service is provided on a network basis.

The LNS serves as the residual cost-recovery mechanism. All transmission costs not otherwise recovered, mainly through RNS, are recovered through LNS.

To avoid immediate cost shifting among the customers of the various transmission providers, NEPOOL provides for a transition period. During the first five years, the RNS