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FERC's Plan for Electric Competition

Fortnightly Magazine - July 15 1998

nothing a municipality would like better than to pay a good part of the costs of running its city with profits from a municipal electric power system if it can price its power to its retail customers at prices competitive with other, likely private, competing systems. They can wait for existing franchises terminate, or even condemn current franchise rights.

The fact that "municipalization" isn't now taking place proves that Order 888 wheeling doesn't change the market to a competitive structure. These potential competitors have long been captive to a monopoly bulk power supplier. Order 888 will make no difference.

In essence, the FERC in Order 888 has created a market structure that accommodates limited competition only for about 15-25 percent of all the kilowatt-hours generated -- the market for coordination service. This market already was competitive and available to all, except for munis and co-ops. It has achieved nothing for the 75-85 percent of bulk power supplies sold to retail distribution systems, or transferred to thousands of captive distribution systems that remain far too small to enter the bulk power supply business. %n3%n With this lack of encouragement to retail distributors, the FERC's initiative cannot foster competition nor offer true benefits to ultimate consumers. Instead of fostering competition, Order 888 provides a dream market structure for dominant utilities -- they can buy in a competitive market and sell in a market they can control.

The RQ Market:

Its Power is Essentially Local

Since high-voltage, polyphase electric power can travel for many hundreds, even thousands of miles over copper or aluminum conductors, one may well ask: Is the market national is scope? The answer is a resounding "no."

A high-voltage transmission system can transfer power for hundreds of miles with very low losses. However, losses from a transcontinental transfer for 3,000 miles, say from Southern California Edison to Commonwealth Edison of New York, would make such a transfer prohibitive, even if there were a suitable high-voltage transmission path. %n4%n

Moreover, line losses aren't the only factor. Even a shorter transfer -- a sale from New York to Nebraska, for example -- would be impractical. While there are no statistics available, from my experience over the last 35 years I would estimate that over 98 percent of all sales of RQ power are made to retail distribution systems to serve load centers located within the control area of the system making the sale. I know of only a few examples where the RQ power is sold from generation located in even a first-tier control area adjacent to the area in which the power is consumed. I know of none where the RQ power is sold from a control area twice removed from source of the load.

Why is supply of requirements power such a short-range matter?

Communications from adjacent and twice-removed control areas are inherently unreliable. It is not unusual for the telecommunications channels between control areas to go awry. Guidelines from the North American Electric Reliability Council require communications through all intervening control areas on the contract path when a seller is not