Few companies achieve sustainable high performance. Markets change but companies fail to adapt, and investors are unforgiving. Utilities, and new entrants, learned this lesson during the first...
Don't Rush the Seamstress: Second Thoughts on the Marriage of the Northeast Grids
so far there's only one working ITC [independent transmission company] where the assets have been transferred, and that's American Transmission, in Wisconsin. So transco formation has not moved ahead very far, and FERC's new orders could slow things down even further. What the FERC decision will do is put transco proponents and opponents in the same room together. It may prove more difficult now for them to reach agreement.
In sum, the platform does not differentiate the value of various technologies (for generation, demand and delivery). As such, the SMD, in its current form, may stifle, if not throttle, the possibilities for a truly efficient, competitive power market. The design looks like an attempt to repackage old tools for dispatching power under the regulated paradigm, with an FTR mechanism grafted on. The FTR concept currently in place at PJM and destined for everyone else in the Northeast, seems to lack a link between the valuation and the management of the FTR and the investment process. One gets the feeling that the FTR design is biased in favor of FTR holders, while their risks are covered by everyone else.
Of course, the FTR concept is supposed to give someone the incentive to add to the transmission network when economically justifiable. The lack of concrete proposals to build on an unregulated basis in the Northeast may indicate that the region does not really need new lines or, possibly, that the FTR mechanism does not send the right signals. Incidentally, if the FTR mechanism works as advertised, perhaps the FERC could dispense with all the rate of return incentives that it proposes for new transmission investment. Do we need both?
How does the forced mediation order solve the seams problem?
We wonder whether the order, as presently proposed, might not create other problems in place of seams. Handled in the wrong way-using the current SMD platform without improvements-the order could lead to market failure, certainly not an unusual outcome these days.
Will the northeastern ISOs merge or just adopt the same platform under the jurisdiction of a northeastern RTO? The ISOs, probably, would prefer the latter course, as a means of survival as institutional entities. Would that motive impel them to adopt the SMD, based on the thinking that doing so solves the seam problem in an optimal manner, and keeps them in business as well? That approach could lead to problems involving differences of operating and planning practices at individual state and control areas. Furthermore, think of the transmission related cost shifts among transmission owners and the new RTO, which should create a major new source of income for regulatory lawyers.
On the technical side, the new setup could lead to highly conservative use of the system, with each ISO computing Available Transfer Capability (ATC) in a conservative manner, without incentive to relax its reserve margins. Duplication of the SMD in each ISO and exchange of data need not produce the coordination needed for near real time adjustments to produce regional reliability in the most efficient manner. For that matter, which entity of the