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A Hope, A Wing, and A Prayer

On the virtues and vices of ICAP, ACAP, FTRs, hubs, flowgates, DAMs, and gaming.
Fortnightly Magazine - April 15 2002

of $30 an hour. ... Suppose that same supplier ... submits a decremental bid of minus $30. If the [bid] clears the market, the supplier will ... incur zero running costs for that hour and be paid an additional $30 [for not running] for a total profit of at least $60."

FERC's New Move: A Single Tariff

Finding that "market design flaws are visible in every regional electric market today," FERC released its working paper on standardized transmission service and wholesale electric design on March 15. The work in progress outlines key principles and policy decisions on standard market design (SMD) to guide FERC in developing a revised open access transmission tariff (OATT). The paper reflects consensus by parties in written comments and workshops held since last October, and FERC expects changes to be made to the SMD by the time a notice of proposed rulemaking (NOPR) is issued this summer.

Network Service. The FERC in the SMD would require an updated, single tariff reflecting a revised OATT for all service that would be filed by all RTOs and any utility that owns, operates or controls interstate transmission facilities. In the next few weeks, FERC will release a straw-man tariff. The new transmission service, called Network Access Service, would be available to all customers and would allow access to all sources and sinks. It would combine the flexibility and universal access of network integration transmission service and the reassignment rights of point-to-point transmission service.

In order to complement the Network Access Service, locational marginal pricing (LMP) would be used for all congestion management. Chairman Wood was pleased that the market design is based on real-time LMP platform, noting that in Texas they didn't adopt LMP, much to his chagrin. "If you vary from basic economic principles" he noted, " it leaves the opportunity to arbitrage."

The paper outlines eleven principles that will guide the SMD process. For example, imbalance markets and transmission systems must be operated by entities that are independent of the market participants they serve. Energy and transmission markets must accommodate and expand customer choices such that buyers and sellers have options that include self-supply, long-term and short-tem energy and transmission acquisitions, financial hedging opportunities and supply or demand options. Transmission owners will continue to have the opportunity to recover the embedded and new costs of the transmission system, but merchant transmission capacity would be without regulatory assurance of cost recovery. Market rules would be technology and fuel neutral.

Transmission Rights. The paper notes that a key implementation issue is the initial assignment of transmission rights. One option is to directly allocate transmission rights to customers that pay the embedded costs of the system, with any rights not claimed then auctioned. Another option would be to conduct an auction to apportion the transmission rights, with the proceeds from the auction allocated to those customers that pay the embedded costs of the system

The energy markets for imbalances would be bid-based, and either would be day-ahead, which is voluntary and financially binding, or real-time. In order to handle imbalances and procurement