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Regional Power Markets: Roadblock to Choice?

Fortnightly Magazine - October 1 1997

half-cent per kilowatt-hour too high. They call if there is no power. Of course, one could unbundle emergency service, but so far this is a fiscal conundrum that few have cared to attack.

Then there is buyer lock-in. Many potential wholesale customers have financial interests in local power plants, and nobody wants to strand their own investment. Many of those late-model nukes are partly owned by municipalities. Likewise, most distribution co-ops have an interest in a generation & transmission co-op with a heavy debt load.

Worse yet, the system was not designed for competition. Engineers like to say that if a system was not designed to do what you want it to do, then it won't do it. Generally speaking, lines go from specific plants to specific load centers. If the industry wants a true grid, then it will have to build one.

Environmental Threats: Catalyst for Protests

Increased use of low-cost, highly competitive coal-fired generation, especially in ECAR, SERC and MAIN, is on a collision course with national environmental concerns, whether well-founded or not. A fundamental change in the regional dynamics of the electric power market could occur quickly if these plants are subjected to massive new controls, even to the point of negating many of the benefits of competition.

There has been an amazing lack of discussion of environmental issues. FERC's 1995 Environmental Impact Statement for open access projected an increase in coal-fired generation and therefore emissions. This has touched off a growing wave of objection by environmentalists and the entire East Coast. The FERC's statement has caused a lot of confusion, however, as it projected virtually no increase in emissions from open-access, per se. This predicted increase of thousands of tons of NOx per year occurs with or without the regs, simply due to the Energy Policy Act. It does not include any new transmission capacity from the coal fields to high-cost states.

These projections, plus the concept of transport of ozone and its precursors, have become a catalyst for the environmental community, led by the U.S. Environmental Protection Agency. EPA has launched several rulemakings aimed squarely at coal-fired power and promulgating tougher national ambient air quality standards. At the height of this summer's ozone season, the Washington Post made a pointed reference to "the belching smokestacks of Ohio" as a major source of the East Coast air quality problems. Then there is global warming, an extremely speculative issue, but one EPA is working hard to link to its air-quality initiatives.

Capacity Margins: Misunderstood by Everyone

How can a must-run plant qualify as stranded investment?

Studies by analysts such as Moody's Investors Service, Resource Data International, and Citizens for a Sound Economy claim there is an abundance of low-cost excess generating capacity that should ramp up in a competitive market.

Industry analysts like Cambridge Energy Research Associates claim there is a growing shortage of generating capacity, verging on crisis. Can both groups be right? Yes, because they are talking about two different kinds of capacity (em specifically, capacity to meet normal demand and capacity to meet peak demand. The