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Beware the transmission operator that is truly "independent."
Fortnightly Magazine - August 2000

press reports about aluminum plants shutting down production and laying off employees in the Pacific Northwest because of high electricity prices. Alcoa Power Generating Inc. acknowledges the problem but sees a possible silver lining in those price spikes. In its comments in the FERC's reliability case, Alcoa attacked the occasional utility practice in power sales contracts of barring the retail customer from reselling the power to third-party customers. As Alcoa sees it, a contract to purchase power is no different than a cogeneration plant. And if qualifying facilities are guaranteed the right to sell power back to the grid, why not everyone? Alcoa explained:

"In economic terms, there is little to distinguish 'inside-the-fence' industrial generation from generation that the industrial user has purchased. In both cases, in times of high demand, it may be economical for the industrial end user to sell power committed to it own use back into the market."

YET LOAD MANAGEMENT CAN'T SOLVE EVERYTHING. Consider the California Department of Water Resources, which runs the pumps that fill the aqueducts to deliver drinking water across the state, and which uses more electric power and transmission resources than any other customer in California. It has water-pumping capability equivalent to 2,600 megawatts of load. Even in off-peak hours, the DWR ordinarily maintains a load of between 1,000 and 1,300 MW. The DWR offers to drop load on an emergency basis as a "non-wires" alternative to transmission expansion, but admits even that plan can go awry.

For instance, Amendment 28 to the California ISO tariff, filed April 14, recognizes that not all loads can turn themselves on and off every 10 minutes in response to ISO dispatch orders. Yet the ISO's proposed Tariff Amendment 29, filed May 2, would do just that. So, for instance, load that had been dropped in one 10-minute interval could be required to be turned back on during the next interval, dropped in the next, and so on, or else be penalized through "no pay" rules.

The DWR says it can drop its pump loads almost instantaneously, but cannot switch them on and off every 10 minutes to respond to ISO instruction. It needs 30 minutes of down time and then five minutes to ramp up for every 100 MW.

RELIABILITY MEANS THAT NOT EVERYBODY WINS. I like the advice from Dynegy vice presidents Kathy Patton and Peter Esposito to rethink the whole ball of wax--including locational marginal pricing and the TLR rules (transmission loading relief)--and to give a second hearing to the FERC's failed notice of proposed rulemaking on capacity reservation tariffs, which would have created firm physical rights to transmission.

As they note in their comments, "Some old NOPRs, like good wine, get better with age."

I also admire Patton and Esposito for daring to question the holy grail of locational marginal pricing. Essentially, they see LMP as a victory for utilities. "Transmission owners and operators clearly win, since ... there is no risk [to them] for costs of congestion." They argue that "power is delivered using a 'blank check' guaranteed by the transmission customers