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Electric Transmission: Jury Still Out on Flow-Based Pricing

Fortnightly Magazine - June 15 1997

and creating a gaming potential for those able to reserve capacity early on.

• Overemphasizes Line

Loading. IMM pricing incorporates "questionable" assumptions that transmission over heavily loaded lines should cost more than transmission over lightly loaded lines. (A lightly loaded line in a non-contingency setting could nevertheless prove critical to the system.) IMM pricing may not afford enough compensation to the line owner.

• Loop Flows. IMM has potential to encourage looping of radial lines (attract flows).

• Ignores Reliability. IMM pricing ignores the fact that new transmission construction is often based on reliability and contingency analysis, not just incremental impacts.

TAPS concludes by questioning whether the electric utility industry as a whole has the guts to implement a complex incremental pricing scheme for electric transmission: "[T]he tariff has no utility sponsor. Nobody is proposing to adopt it."

But on the other hand, as mentioned earlier, the MAPP regional reliability council has proposed a restated pool agreement incorporating a flow-based transmission pricing method. (However, Otter Tail Power Co. notes that the two methods are different and perhaps "irreconcilable." %n13%n)

Dominion Resources also answers many of the objections described above, pointing out, for instance, that because transmission lines are lightly loaded during most hours, the impacts assigned to line segments under its IMM method will be smaller than one might think. Overall, says Dominion Resources, IMM pricing should produce total revenues "that are far lower than total [system] replacement costs."

Outlook

Only time will tell whether the FERC ultimately proves willing to adopt flow-based transmission pricing. In March, however, the FERC took what might be viewed as a cautious first step, when it accepted an experimental participation agreement filed by the General Agreement on Parallel Paths that proposes a method to compensate utilities for unscheduled loop flows. %n14%n

For its part, Dominion Resources sees a concrete advantage with the "hypothetical" nature of its proposal:

Because of the unique features of the [IMM method] public utilities have been reluctant to adopt this novel approach. ... In this way, utilities, power pool, and Regional Transmission Groups will have the benefit of the Commission's views prior to filing a flow-based rate schedule.

The company remains convinced that its method has what it takes to bring transmission pricing into the world of open access and competition in generation. Et

Bruce W. Radford is editor of PUBLIC UTILITIES FORTNIGHTLY.

Too Hypothetical?

"Dominion Resources candidly admits that its petition is intended as a stalking horse."

(em Southeastern Federal Power Customers Inc.

"Dominion Resources owns no transmission facilities ... and is not jurisdictional to FERC. ... [Its] pricing proposal is entirely hypothetical."

(em Old Dominion Elec. Co-op. Inc.

"Paradoxically, all [these] intervenors ... are non-jurisdictional entities and hence, by their reasoning, should be ignored."

(em Dominion Resources Inc.

Too Complicated?

"It requires complex data manipulations ... costs would be difficult to predict, especially for a small utility without personnel and sophisticated computer equipment."

(em Central Va. Elec. Co-op. Inc.,

Craig-Botetourt Elec. Co-op. Inc.

"Dominion's suggestion that IMM pricing 'is no more complex than traditional cost-of-service ratemaking' ... cannot be taken seriously."

(em Alabama