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The Aftermath of Alliance

What can we learn from its failure?
Fortnightly Magazine - February 15 2002

kinks. "LMP plus," PJM's new pricing proposal, might work, in Esposito's view.

In addition, Chairman Wood has announced that he plans to meet with PJM and MISO officials regarding their letter of intent. No specific date has been set, but Wood has said he expects to discuss the proposed market and RTO issues generally.

Right now, Esposito says, there are no incentives in transmission markets to relieve congestion. For example, he says that Dynegy had a deal with an unnamed utility that would have earned the utility $40,000 in one day. As part of the deal, the utility would have had to drop their transmission rate, say from $3 to $1.50. Esposito says the utility turned down the deal. The main reason, he says, was a common problem utilities have-a mechanism in state ratemaking regulation that takes any excess collected above approved transmission rates from another part of the utility's balance sheet. So there's no discounting going on, Esposito says, which is a huge difference between gas and power. Because there's no profit incentive, there are hundreds or thousands of these types of transactions every day that don't happen, he says.

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