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News Digest

Transmission & ISOs
Fortnightly Magazine - June 1 2000

markets.

"In its 1997 order ... the FERC required the ISO to structure its operations so that customers receiving transmission service under existing contracts could ... submit schedule changes after the ISO's scheduling deadlines [for other grid users]. To fulfill this requirement, the ISO reserves some transmission capacity from availability for scheduling [by other customers]. ... This sometimes results in insufficient capacity being available to accommodate all desired schedules, requiring the ISO to resort to its congestion management procedures in the day-ahead and hour-ahead markets."

But, as the ISO noted, "the holders of [the preexisting contract rights] have no obligation to notify the ISO in advance of the size of the transactions they intend to schedule ... or whether they intend to schedule any transactions at all. As a result ... capacity that was reserved in forward markets for the later use of existing rights holders is often unused, even though other scheduling coordinators are required to pay congestion costs in those forward markets. ... This phenomenon, referred to as 'phantom congestion,' imposes substantial costs on all market participants."

The Loyal Opposition. Some applauded the ISO's move. Pacific Gas & Electric said it "supports the ISO's TAC proposal." Southern California Edison called the package an "appropriate compromise." However, it appeared that the ISO board was able to win approval for Amendment 27 without support from public power, as PG&E noted wryly.

"PG&E regrets that none of the government agency representatives on the ISO board, for whose benefit this proposal was created, were able to support it. But PG&E is committed to continue to work with those agencies in this proceeding, to see if further improved arrangements for expanded membership [for participating transmission owners] are possible."

Nevertheless, the Amendment 27 drew considerable opposition. It would take a book to describe fully all of the objections against the new tariff, but Sempra Energy, which filed a scathing protest, offered a fairly concise case for the opposition. Sempra argued that the new rate plan would:

  • Shift Fixed Costs - from customers of new entrants to customers of TOs already participating in the ISO;
  • Confound Grid Expansion - by socializing higher fixed costs among all grid users, while benefits of grid expansions would remain specific to certain grid locations;
  • Undermine PUC Policy - by giving preferential treatment to new entrants to induce membership in the ISO;
  • Prompt Uneconomic Bypass - of low-voltage transmission and distribution systems;
  • Distort Economics - of energy transactions;
  • Subsidize Public Power - by extending preferences to customers of governmental entities by artificially mitigating their congestion costs;
  • Discourage ISO Expansion - by deterring out-of-state grid facilities from being brought under common operational control with the ISO network; and
  • Threaten Tax-Exempt Debt - because of a "system-wide socialization" of high-voltage transmission costs.

Sempra saw the ISO proposal as a bid to entice municipal utilities and other nonjurisdictional transmission owners to join the ISO. As the company explained, the state had postponed transmission pricing reform since it could not reach a consensus at the time of passage of AB 1890. "This issue," said Sempra, "was

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