Why not use the Web to buy and sell transmission rights at prices derived from bids and offers?
You make an offer, I accept. You deliver a product, I deliver money. This simple construct...
Marketers, meanwhile, are concerned that the rules of the ISO were put together by people who don't understand the commercial marketplace - people, who like Imparato, once worked in utilities.
He says people feel that the Enrons of the world, in supporting SCs, are trying to keep market transparency from occurring. "I just don't buy it," he says. "The crappier the rules or the marketplace, the more arbitrage there is and you can bet your money that marketers will take advantage of arbitrage," he says. "They should. But I don't believe that the California marketplace was put together with the idea of trying to create distorted rules. It was put together with the idea [that] as the rules evolved any bad rules would clean themselves up and these temporary arbitrage opportunities will go away."
Who Has the Rights?
Imparato says the marketers' biggest concern is that the ISO may put commercial rules into place that will distort markets. That's why, in the battle over the auction of physical rights, marketers have been fighting for firm transmission rights, or FTRs.
The traditional concept of physical rights is a contract transmission path, which may not be the real transmission path. "In the West, where we've been arguing for physical rights, what we really are arguing for is a different physical right," Imparato says. "A physical right which gets rid of the abuses of the old contract path system. The right is defined the same as the ISO's financial rights¼ It's a right that doesn't allow you to hoard the right."
By tradition, one buys a physical right. If it's not used, it's retained. The kind Imparato advocates is a "use it or lose it" provision, where the ISO gets to take back the right and sell it.
Imparato says by buying that right, a purchaser gets financial and operational certainty.
From the utility perspective, Ronald Cottom, Southern California Edison's grid strategies manager, admits physical rights don't work well. "We have loop flow," he says. "We've never been able to figure it out in 20 years."
Marketers, he says, fight physical rights because they never had to pay for loop flow. "It's a very simple market from an accounting standpoint. It says, 'I've bought certain rights.' From a utility standpoint, today when someone else uses your rights you have no ability to collect your money back.
"I think most marketers have never faced those types of things," he says. "They buy certain things, and they schedule it, and utilities today take it upon themselves to make everything work."
FERC has agreed to start out using the congestion rights proposed in the scheduling.
"What we want to do is make sure we target the people who use the path to pay the cost," Cottom says.
Besides congestion issues, utility distribution companies are concerned about SCs following their own operating instructions. If the ISO tells them to cut generation to balance with load because they're causing system problems, "my expectation is it better work," Cottom says.
Edward Cazalet, CEO of Automated Power Exchange