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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

as well as the proposed RNMC, would not be able to accommodate the important market mitigation practices that occur in ... New York, particularly with respect to ... generator market power within New York City. ...

"Again, this is simply incorrect, and misrepresents what actually is happening in PJM today. ...

"In New York, the mitigation is implemented by cost-capping in-city generation units when prices in the day-ahead market in-city exceed a certain price threshold relative to prices at Indian Point. If this threshold is crossed, a second run of the SCUC is conducted using mitigated cost-based rates. ...

"PJM also implements this mitigation by evaluating the existence of congestion in the SCUC results. The only difference is that PJM has implemented a mechanism to effectively re-run the SCUC with the mitigated prices in a single model pass. ... [T]here is absolutely nothing in the procedures proposed for the RNMC that would prevent a 'two-pass SCUC' mitigation process like New York's if the participants desired it. ..."

7. FINANCIAL CONGESTION RIGHTS. "The definition of financial transmission rights in the two markets-FTR's ["firm transmission rights" in PJM] and TCC's ["transmission congestion contracts" in New York]-are the same. These rights entitle the holder to the difference in locational prices between the point of withdrawal and the point of injection of energy.

"PJM allocates these rights ... [they can be resold bilaterally]. ... [T]he rights are initially allocated and extend for one year, with the allocation process [then] being re-initiated. ...

"New York effectively auctions off all transmission rights and allocates the revenues to the transmission owners who then apply these revenues to reduce Transmission Service Charges (the fee mechanism used to recover the fixed embedded costs of operating the transmission system).

"The New York market is very flexible in terms of the ability of the parties to bid for exactly the rights they want ... [while] the PJM annual allocation process precludes the establishment of a meaningful long-term market. This is a key market design deficiency, as it makes long-term hedges for both generators and loads impossible.

"If you want the ability to manage risk on a long-term basis, a clear necessity in a capital-intensive market, you can't have the PJM allocation system. In fact, the PJM committee structure is currently actively considering moving to a market design structure that is similar to what New York and New England have proposed."

8. ICAP AND RESERVE MARKETS. "One difference between the models in the reserve area comes with respect to differences in performance obligations of the units in each market, and associated bidding requirements. ... For example, both PJM and New York obligate generating units that are serving as installed capacity [ICAP] to bid into the day-ahead market. ...

"PJM ... expects such an installed capacity unit to be available to be called (or recalled) by the ISO [on an intra-day basis] if the unit is needed ... PJM compensates generators for such an [intra-day] call through payment of the bid start-up and no-load cost for the unit ... which are in addition to the

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