The next decade will bring serious disruption to the utility industry. But with cooperation from regulators and legislators, utility companies will be able to shift their business models to...
Sweating the Deadline: What Consolidation Means for Traders and Vendors
small part of the total cost picture. For a region like you describe, that has been somewhat leery of joining a larger RTO, I think what it boils down to is that some regions might not reap the same degree benefits that others might.
Q: Let's get back to market design. Some regions favor physical flowgates to allocate transmission rights and manage congestion. Others rely on financial rights. How does that affect power marketers operating nationwide?
Oliva: It is true that we have different models across the country for transmission rights and congestion management. New York and PJM both follow a financial model based on LMP (locational marginal pricing), though New York is not as granular as PJM in terms of the number of pricing nodes. By contrast, GridSouth, RTO West and DesertStar envision a physical rights model. Alliance, MISO and the Southwest Power Pool have proposed a hybrid model that would marry aspects of the physical and financial models. "Can we come up with a forward market for transmission rights?" That's the thinking behind a physical model. It allows you to set up a forward market for transmission rights, ahead of the trading day. And from there you can trade these physical rights in a financial way. But will these multiple models prove to be an impediment to trading? I don't think so. The marketers have just not said that, from what I can see.
Q: Can you describe your practice with RTOs?
Winter: We have been focusing on back-office systems and processes, including billing and settlements.
Q: If RTOs consolidate-as the FERC wants-how will that affect software vendors and power marketers?
Winter: We have been working with PJM West and GridSouth toward a Dec. 15 implementation date. But first, before that happens, and after the participants receive the finished software, they will want to construct a mock market to test the software. So the FERC orders have probably slowed things up. You see, it's not really the software. It's the changes in the market rules that the vendors have to deal with.
Q: Is the situation in the Southeast any different from the Northeast, where the different regions already have been working on coordination?
Winter: In the Northeast, PJM is viewed as the model. New England already has said that they're working toward the PJM model. They're already close to a meeting of the minds. And I've talked with Enron-they like PJM's LMP model. I think they would prefer to have just the one set of market rules. And remember, many of the big traders build their own shadow software-for things like settlements and dispute resolution. In the Southeast, however, it's not that easy. GridSouth and Entergy and the Southwest Power Pool each have been writing software.
Q: And Grid Florida? Is that RTO dead now?
Winter: No, I don't thinks so. Grid Florida is in a deep freeze now, but I think eventually they will settle their differences with the Florida Public Service Commission.
Q: What do you hear about National Grid becoming the manager of