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Frontlines

Why power prices may have hit a new plateau, and what it all means.
Fortnightly Magazine - December 2000

transmission markets played no meaningful role, despite arguments (convincing, I think) that the state should move to nodal-based, locational marginal pricing.

"During the past 12 months total congestion costs (only a fraction of which is being uplifted) were just $211 million in a $26 billion market (about eight-tenths of 1 percent). Even if the current zonal structure needs work, price signals sent by LMP would have done nothing to hide the underlying problem with supply-demand imbalance."

So far federal and state regulators have bet everything on transmission access—that with enough regional transmission organizations to ensure a smooth flowing grid without discrimination by price or access, that electricity competition will flourish. But now comes the call to cap wholesale power prices, which would put FERC in the business of setting a rate base for every single power plant.

Fifty years ago we tried to do the same thing for natural gas, when the Supreme Court's Phillips decision sent the Federal Power Commission (the FERC's ancestor) on a wild goose chase to regulate natural gas prices at the wellhead by production cost. All that did is nearly kill off the natural gas industry for some 30 years.

 

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