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Reliability or Profit? Why Entergy Quit the Southwest Power Pool

Fortnightly Magazine - February 1 1998

control over operational decisions. Companies like Entergy could benefit from the SERC approach, which allows the large utilities to use their existing infrastructures and retain more control over system operations. This approach is dramatically different from the procedures established in the SPP.

For example, after the issuance of NERC security guidelines, the SPP had developed procedures to accomplish line-loading relief by terminating scheduled power transactions. More recently, the SPP began to consider generation redispatch options. At its November board meeting, the SPP approved a proposal to move forward with the creation of an ISO. An ISO task force is currently developing a proposed ISO plan, which will be presented to the board of directors in May 1998.

Now, however, with the filing of a transmission tariff at the FERC, the SPP model represents an additional problem for Entergy, particularly in light of the existing security control arrangements in the SPP. The SPP tariff, expected to be in place by April 1998, would set a region-wide price for transmission service with a cost-of-service cap. The tariff's goal would be to reduce the pancaking of intra-region tariffs.

However, with a cost-of-service cap it becomes difficult for transmission owners to recoup any economic rents from transmission line congestion. Line congestion, like any other market lacking a price mechanism for allocating a scarce resource, is determined by nonmarket rules carried out by the security coordinator at the SPP. There lies the problem: If large transmission owners (like Entergy) cannot earn economic rents on congested lines, and if they also do not have the ability to determine themselves which transactions will be cut in case of line load relief, they are subject to the independence of the regional security coordinator. Given SPP's movement toward establishing an ISO, it is not at all surprising that a large utility like Entergy would move away from the more centralized SPP and toward the more decentralized SERC.

Of course, we do not mean to suggest that Entergy does not have any mutual interest with SERC. Certainly, the statements by Entergy about the need for a better alignment with SERC are important. However, it stands to reason that such conclusions are true for all utilities located on the fringes of any given NERC region. It seems doubtful that a few months of greater interaction with SERC overwhelmingly outlined the need to break with a decades-long relationship with the SPP and its member utilities.

The concern over an imminent merger between SPP and MAPP also appears to make for convenient timing. Entergy claims that a potential merger between SPP and MAPP would carry greater benefits for the northern members of the SPP. However, these sub-regional benefits and preferences are at least debatable, since St. Joseph Power & Light, located in the northern part of the SPP, recently announced its intentions to leave the SPP because it felt that MAPP better met its interests. What is not debatable is the simple fact that a merger between SPP and MAPP would further diffuse the concentration of power that any one utility has in the region.