Allocating the costs of new transmission investments requires accurately assessing the value of those new lines, and identifying the primary beneficiaries. But formulaic approaches rely too much...
What we're not arguing about is important too.
More than 200 organizations and individuals have staked out positions in comments filed with the Federal Energy Regulatory Commission, in response to its proposed rulemaking on regional transmission organizations (RTOs).
The major debate in the reply briefs is on three issues.
Mandatory vs. Voluntary Participation? The FERC's proposed rulemaking relies on strong RTOs rising spontaneously from the primeval murk of the conflicting interests of the states and industry participants. Some respondents want the FERC to take a stronger hand.
Who Will Own and Govern RTOs? The FERC wants "independence." The respondents debate how much is needed.
Who Writes the Tariffs? Some respondents support the FERC's proposal that the RTOs have independent authority to set transmission tariffs. Others say that an attempt to take authority from transmission owners could be highly litigious.
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What's largely missing from the debate is whether the RTO concept would meet the FERC's underlying objectives (efficiency, equity, etc.). Most parties seem to assume that RTOs will be created in some form, and are fighting for the form that favors them the most.
So what should we be addressing?
Efficiency. We have given enormous forfeits to create competition, and should ask whether the RTO approach will help create enough efficiency to recover them.
We saw this coming. A decade ago the U.S. Congress Office of Technology Assessment did a study of possible impediments to a competitive power sector. The report, "Electric Power Wheeling and Dealing: Technological Considerations for Increasing Competition," warned that "separating a system's mutually dependent areas of decision-making may introduce a different kind of inefficiency that could be costlier than that intended to be addressed by competition."
New Transmission. Both the FERC's proposal and the debate fail to address a major impediment to the construction of new transmission facilities. We refer to the Order 888 requirement that the transmission customer pay for system upgrades needed in order to serve him. On the surface, this policy seems reasonable and fair. But since electric power transmission is lumpy, this is like requiring an occasional McDonald's customer to pay $1,200 for a hamburger, "because we ran out of meat and had to kill another cow in order to serve you." This policy keeps customers off the system and incentivizes the transmission owner to not build new transmission.
Technical Problems. The debate leaves for others the solution of certain technical problems, including:
* Determining the appropriate tradeoffs between reliability, cost, environmental effects, etc.
* Measuring transmission capacity. The use of available transmission capacity, or ATC, as the only yardstick is unfortunate. ATC is an imperfect measure.
* Dealing with uncertainties in transmission planning. The FERC threw out the system impact study procedures in New England because they were "based on unrealistic assumptions, produce unreliable cost estimates and are not otherwise justified."
* Dealing with transmission system operating risk. ATC is a random variable. Transmission providers can protect themselves against nonperformance risks by posting low deterministic values of ATC, leaving significant amounts of ATC unused.
* Managing parallel flow.
The FERC may