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Frontlines

Fortnightly Magazine - August 1997

in markets," adds Spencer. "Our approach has tried to avoid bundling energy and transmission, and the complexities that imposes on governance, and the potential for conflicts of interest and discrimination."

Here, Spencer is addressing the question of transmission pricing. In a recent column ("PJM's Brave New World," June 1, 1997, p. 4), I reported how the supporting companies had proposed a transmission tariff based on locational marginal pricing. Transmission prices would reflect differences in the price of electricity between one location and another--a result of constraints in transmission capacity.

Since that column ran, PECO, the CCEM and the supporting companies have each filed a new set of proposals with the FERC. You can download and print more than two dozen relevant documents at http://www.pjm.com/FERC_filings_053197_all.html.

You'll also discover why the supporting companies continue to tout the benefits of tight pools.

In a news release issued by July 7, the supporting companies argued that PECO's plan would reduce the level of coordination by eliminating central dispatch, reserve sharing and coordination with neighboring pools. To bolster their view, they quote an opinion from the New Jersey Board of Public Utilities that favors an ISO built on the old pool structure: "We [the BPU] are not convinced that the power exchange and grid management and reliability functions need to be separated. Indeed, we see the separation of these functions as giving rise to inefficiencies and added costs and complexities."

Paradoxically, the supporting companies see a for-profit ISO as perhaps less than independent. With an end to installed capacity requirements and with the ISO relying on call contracts to purchase balancing services, the supporting companies question whether the ISO, as owner of transmission assets, might have a financial interest in the economic performance of a power market participant, thus violating one of the FERC's guiding principles for ISOs.

Meanwhile, other parties worry about governance--whether marketers, consumers and even conservationists will find adequate representation on the ISO's board of managers.

David Wooley, counsel to the Pace University Energy Project, notes environmental and consumer concerns. "ISO management could have an intended or unintended bias against renewables, energy efficiency or even distributed generation. The way things are being set up, utilities will have strong economic incentives to favor their own generation."

Mollie Lampi, counsel for the New Jersey Public Interest Group Citizens Lobby, adds that public interest concern extends to transmission pricing, and the LMP model proposed by the supporting companies.

"The problem with locational pricing is that it doesn't provide a flourishing secondary market. Node-to-node transactions are not particularly fungible.

"And renewables need a strong secondary market," adds Lampi. "You need to know how much it will cost you to bring power across a constrained interface before you decide to bring power from one region to another. The zonal method [proposed by CCEM] would offer a better foundation for a secondary market.

"The same questions are on the table in the New York Power Pool filing. [See, FERC Docket Nos. OA97-470, ER97-986.] However, the New York governance proposal is more friendly to environmental and consumer groups," she says.