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The Rules of the Grid: Transmission Policy and Motives Gehind It

Making sense of RTO Week, the mediation talks, and FERC's promised new rulemaking.
Fortnightly Magazine - December 2001

don't make an obvious contribution to regional trade patterns.

As was shown again and again at RTO Week, the wide acceptance of locational marginal pricing (LMP) tends make the merchant generators the most important clients of the RTO. More LMP seems to make physical transmission less important in the scheme of things. It seems to do a better job of incentivizing merchant generators than of helping the RTO identify and plan capital opportunities to upgrade or expand the transmission grid-which, after all, was a key early idea behind the notion of RTOs.

In particular, and perhaps with the Neptune Transmission Project in mind, engineer Masheed Rosenquist from National Grid challenged FERC and her fellow panelists to rationalize the RTO structure with the idea of merchant transmission:

"Planning has been contentious in New England," she noted, "with debate about whether the market creates an efficient result. How do you reconcile a new merchant transmission line that sells its own rights with an RTO policy that favors non-pancaking?"

Vermont regulator Michael Dworkin then added: "You cannot combine a merchant transmission solution with eminent domain rights. State eminent domain laws will require proof that the project at hand is the most efficient alternative, compared with new generation, a gas pipeline or demand-side management, etc. That is why a market solution with eminent domain laws will automatically involve a governmental decision on efficiency and planning."

FERC commissioner William Massey then asked, "Will a strong RTO planning process increase the chance that state officials will approve transmission projects?"

"What makes the data credible," Dworkin answered, "is first a lack of bias and second, technical competence. A commitment to the general public good. And we would prefer to have a lack of bias, rather than just a stakeholder from every conceivable interest group."

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