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FERC's Plan for Electric Competition

Fortnightly Magazine - July 15 1998

run to about 15 percent of your investment. Over the next five or six years, without coordinated development, you will be carrying on average an excess 212.5 MW of reserves, and the annual cost will exceed $30 million per year. That will either cut back on your abiliity to offer competitive prices or cut back on the return to your investors. If you are using some debt capital, remember that you have to keep paying your bondholders no matter what. Of course to get the debt capital you will have to offer the bondholders some assurance that the project will be a great success.

Know Your Power Products

How Coordination Services Differ from Requirements Power

REQUIREMENTS POWER. The purchaser of RQ power is typically a small municipal, a cooperative, or in some cases a private distribution system, whose loads are too small to allow them to develop an integrated bulk power supply system with large scale base load generating units and low reserve percentages. Municipalities served under a franchise are potential purchasers.

COORDINATION SERVICES. Describes the wide variety of non-requirements, wholesale power sales agreements, including interconnection, pooling, and other agreements, and is generally sold on an interruptible basis, with the seller undertaking no "public utility responsibility," and includes:

(1) emergency energy supplied under a reserve-sharing agreement;

(2) economy energy, supplied when one utility has a lower system lambda (marginal cost) than another (allowing the two systems to effect a transfer and split savings);

(3) maintenance energy for a planned unit outage;

(4) unit power, or sales the capacity and energy of a single base load unit (generally noninterruptible unless the unit goes down, but the seller may undertake to supply reserves).

PLAYERS. IPPs, EWGs and marketers and brokers can sell power, but because they do not operate an electric power system, they cannot offer RQ power.

"Firm" Power: A Useful Product?

How FERC drew a faulty analogy with natural gas.

"FIRM POWER" from thermal generating units makes an interesting contrast with "firm" gas supply, which exposes the fallacy of ignoring the RQ concept in FERC Order 888.

PIPELINES VS. WIRES. Made of thick steel buried underground, as pipeline has very good reliability. Even if a compressor fails, the pipe will have sufficient "line pack" (gas under pressure in the line) to maintain deliveries. Any analogy with electricity is mistaken, since "firm power" implies a system of generators and transmission lines engineered to account for all reasonably forseen contingencies such that power is available more than 99.5 percent of the time.

SHORT-TERM VS. LONG-TERM. Though it agreed initially in Opinion 57 to define two bulk power markets for (1) coordination and (2) requirements power, the FERC later redefined the two bulk power products as (1) short-term firm and (2) long-term firm. These definitions invoke the concept of "unit power." Neither represents RQ power. The FERC mistakenly used the term "firm" in same sense firm natural gas deliveries are not interruptible by the seller, but are sold without reserves of additional pipeline capacity.

1 Florida Pwr. & Light Co., Opinion No. 57, 8 FERC