Taking a different view on merchant development.
The Nov. 15 issue of included an article entitled...
Regulators will have to decide who pays to upgrade the transmission system.
In the mid-1980's, many consumer advocates argued that while there was serious discussion regarding the upgrading of the telecommunications network, little consideration was given to the question, "Who should pay?" The argument centered on whether a residential customer, who had only one or perhaps two lines and would not need to transmit data, should be forced to pay for an upgraded system designed primarily for business customers who needed the ability to transmit both voice and data. Using digital versus analog service and fiber optic versus copper wire for transmission also was discussed.
Today, we are facing similar questions in the electric industry, what price and who should pay?
Because reliable sources of power are essential for the seamless operation of numerous processes, commercial and industrial customers are demanding a reliability standard of 6-nines and talking about upgraded reliability to 9-nines (). In order to achieve these levels of reliability, massive upgrades to current transmission and distribution infrastructures with duplication and redundancy are required. This, obviously, will be extremely expensive.
Regulators should examine current transmission requirements and developments to understand future reliability and cost issues. Transmission and distribution systems currently require routine maintenance, repair, and upgrades to maintain reliability at the current 3-nines standard. In addition, the formation of regional transmission system operators will require upgrades to transmission infrastructures in regional service territories to overcome internal transmission constraints.
We are convinced that competition cannot thrive in a system with chronic transmission constraints that prevent the flow of power. We also believe that constraints inevitably lead to higher prices, price volatility, and reduced reliability.
The release of the president's proposed National Energy Policy indicates that discussions of these issues have reached the White House. 1 One proposal in the report directs Secretary of Energy Abraham to work with the Federal Energy Regulatory Commission (FERC) to improve the reliability of the interstate transmission system and develop legislation to provide for enforcement by a self-regulatory organization subject to FERC oversight.
Another recommendation is to expand research and development of transmission reliability and superconductivity as a means of increasing the carrying capacity of transmission lines and reducing line loss. Transmission constraints can be minimized or eliminated by upgrading transmission lines. This, of course, would improve reliability but will cost billions of dollars. Transmission and distribution system upgrades produced from routine maintenance, regionalization efforts, and a strong national energy policy will result in higher levels of reliability, moving regional territories beyond 3-nines and possibly to a new 6-nines standard.
But again, there is a huge cost involved. This discussion brings us full circle to the initial question. "Who should pay?" We believe that customers should have the opportunity to choose the level of reliability required for their needs. Residential customers may decide that 3-nines is sufficient and therefore, they should pay only for that reliability level. Certainly, many commercial and industrial customers may require 6-nines or even 9-nines reliability and those customers should pay for an upgraded level of reliability. Regulators, utilities, end-users, and