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BPA, TVA, Salt River: Playing Fair in Power Markets?

Fortnightly Magazine - July 1 1998

exchange from the latter's zonal pricing plan to handle congestion, a policy that could end up shifting costs among BPA's customers.

On July 30, 1997, in the same order in which it rejected the "Special Settlement Rule" for BPA, the FERC approved in principle a two-part transmission pricing regime for the California ISO and PX. That two-part rate included usage charge (based upon adjustment bids by scheduling coordinators) and a congestion charge to account for constraints on interfaces between transmission zones. The congestion fee was to reflect the marginal value on the congested interface, defined in terms of hypothetical redispatch costs that would be incurred to boost the scheduling limit for the interface by some small incremental amount.

According to Jim Kritikson, PX scheduling director, the ISO conducts an auction for use of the transmission in which everyone, including the owner, bids for use of the capacity. The bids for use of the transmission capacity are provided through a complex process of adjustment bids associated with initial preferred schedules submitted by each auction participant.

The initial preferred schedules indicate how the generators would be scheduled to supply the energy they have sold in an energy auction, and where and how the buyers of the energy would like to take delivery. The transmission auction awards use of the transmission to the highest bidders. The lowest winning bid establishes the auction price for winning bidders.

The auction, price, or congestion charge, as it is also called, produces a congestion revenue for the ISO. The revenues collected by the ISO in this manner are credited against the transmission rate base revenue requirement of the transmission owner.

As the FERC observed, the congestion pricing regime was expected to create incentives to locate new load on the low-cost (export) side of transmission constraints, and new generation on the high-cost (import) side. But a more important question was: What would congestion pricing mean for BPA customers?

The FERC gave final approval for the California ISO and PX last fall, but not before at least one BPA customer, San Francisco's Bay Area Rapid Transit, had sought unsuccessfully to win an exemption from paying congestion fees for transmission.

In fact, several municipal customers had questioned congestion pricing. The cities of Santa Clara, Redding and Palo Alto argued that congestion pricing could create "improper cost shifts among customer groups." BART had argued that it had entered into long-term take-or-pay contracts for preference power from BPA in reliance on transmission pricing based on average embedded costs. It added that California restructuring law (Cal. Public Utilities Code Sec. 701.8) gave it a special protected status as well. The FERC, however, would not budge. It made room for further negotiation, but stuck to its congestion pricing idea: "Rather than order the ISO to conform its tariff to fit BPA's historical practices, [we support] the ongoing collaborative process as the best alternative." 81 FERC ¶ 61,122, Oct. 30, 1997.

Lately the PX has continued to fine-tune its congestion pricing model. Recently the FERC approved amendments filed on March 18 to address a "potential gaming problem"