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Reliability or Profit? Why Entergy Quit the Southwest Power Pool

Fortnightly Magazine - February 1 1998

and operational changes from the top down, the regional councils themselves had begun to explore their own options. In September 1996, the utilities in peninsular Florida, who had been part of the Southeastern Electric Reliability Council (SERC), broke away to form a new NERC regional council known as the Florida Reliability Coordinating Council (FRCC). The change appears perfectly sensible from the perspective of geography and electric system operations.

Then, in October of last year, the Mid-Continent Area Power Pool and SPP began to consider the possibility of merging to form a single NERC region. Both MAPP and SPP had been working in similar directions regarding the creation of ISOs and regional pricing initiatives within their respective boundaries. The recent resignation of the MAPP executive director also created a convenient opportunity for the two regional councils to consider the option of merging.

By the end of the year, after Entergy had declared its intention to withdraw from SPP, neither MAPP nor SPP had announced a formal merger agreement. On Dec. 19, however, SPP confirmed that it had filed an open-access transmission tariff with the Federal Energy Regulatory Commission with a pricing approach similar that under development at MAPP. (See sidebar, SPP's Transmission Pricing.)

The Story Line: Entergy's Withdrawal

Entergy gave three nominal reasons for withdrawing from the SPP: (1) increased involvement with SERC; (2) displeasure with SPP's proposed pricing plan; and (3) redundant security coordination costs.

For the record, Entergy stated that in recent months, its involvement with SERC had increased because of a higher number of wholesale transactions, complicating the operation of the interconnected transmission systems linking it with SERC. It said its interests in addressing loop flow, reliability and security were more closely aligned with SERC than with the other members of the SPP. Entergy argued that the SPP was more concerned with loop-flow issues associated with MAPP. It cited the SPP's possible merger with MAPP as an example of that northern preference.

Second, Entergy cited displeasure with the SPP's intention to file a regional pricing tariff with the FERC. Among other issues, the company said it believed the tariff would not properly recover costs from users. The tariff, expected to go into place in April 1998, had been designed to recover not only the cost of service of transmission owners, but also 65 percent of the SPP's tariff administration costs.

Third, Entergy claimed that the costs associated with security coordination for the SPP region were redundant to existing Entergy investments and questioned its 25-percent cost share, which it said would be recovered unnecessarily from its own ratepayers. The SPP had announced plans to double its existing staff, and increase its annual budget by approximately $2 million, to meet its expanded responsibilities as the SPP regional security coordinator and regional pricing tariff administrator. Entergy's proportion of these costs would amount to an increase of about $500,000 per year, or 21 cents per customer per year.

The Subplot: An Eye on Profits

An obvious, yet implicit reason for the Entergy withdrawal from the SPP appears to rest with a reluctance to relinquish