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MAPP, MISO & PJM: Three Regions Fight Over Wires, Prices and Profits

Fortnightly Magazine - February 1 1999

cut in annual transmission revenues for WEPCO. And he added that WEPCO was atypical: "Unlike most utilities, which have 10 to 15 percent of their plant in the transmission function, Wisconsin Electric has only 7 percent of its plant booked to transmission. Further, [our] transmission plant is, on the average, older and therefore more depreciated."

Moreover, Delgado was speaking only of return on investment - not capital for new construction in a state facing transmission constraints.

"Wisconsin faces very limited capability across its western interface with MAPP utilities. ¼ [T]ransfer capability into Wisconsin from Illinois is also much more limited than it used to be just a few years ago. Consequently, while Wisconsin has long been an electrical 'peninsula,' it has recently taken on the attributes of an electrical 'island.'"

The issue of return on equity in the MISO case is set for hearing before an administrative law judge in June. Nevertheless, any interim negative event might spook the fragile core of MISO participants. Accordingly, the MISO has asked for a set of four instructions, ensuring that the ISO equity return will be high enough to:

(1) offer incentives to join the ISO;

(2) avoid penalizing participants, compared to what they would receive in bundled rates without joining the ISO;

(3) encourage and facilitate construction of new transmission facilities; and

(4) be comparable to returns earned by other transmission-only companies, such as interstate natural gas pipelines.

Consumer advocates in Ohio, Indiana, Pennsylvania and Missouri oppose the MISO request: "Although not stated explicitly, the apparent purpose of the motion is to obtain ¼ a rate of return higher than that actually necessary.

"Whether gas pipelines are enterprises which have similar risks to the Midwest ISO is a question of fact. ¼ It is not the sort of question appropriate for decision through a 'policy instruction' without any evidence being taken."

PJM: Who's Gaming Whom?

The complaint filed by Old Dominion Electric Co-op paints a different picture. In PJM, a competitive market supposedly is already up and running. The pieces are in place. Yet something has gone wrong, says Old Dominion, a fault it lays to market "gaming" strategies made possible by well-intentioned restrictions imposed on a temporary basis by the FERC.

Could it be the commission itself that is the culprit?

ODEC charges that the PJM restructuring has led to sudden, unexplained energy price increases in PJM. It suggests that the blame lies with a "price cap" imposed temporarily by the FERC on generation within PJM. It argues that this "price cap" has led PJM resource owners to export their power outside the interconnection, where it can take on the guise of an import through a loophole and then bypass the FERC's price cap. As a remedy, ODEC asks PJM to recall these power exports for sale inside PJM at cost-based rates, to keep the PJM price down. It would also have the FERC investigate the price runup.

Here, though, ODEC becomes its own worst enemy. Its complaint confuses the meaning of terms and definitions used in the PJM market structure. Two key