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A Vision for Trasmission: How the RTOs Stand

And where the trouble spots lie in FERC's grid plan.
Fortnightly Magazine - August 2002

and control area services. Yet even as CAISO proposed a hefty boost to its GMC to keep up with administrative costs, demand for CAISO's grid services continued to fall, threatening a classic death spiral. (See Fig. 4, ISO Grid Management Charge)

Also the proposed GMC rate hikes seemed to mirror huge costs that CAISO has incurred over the past several years for litigation and crisis response-activities that more resemble lobbying than grid operation.

For example, in CAISO's latest "rate case," filed to set the grid management charge for 2002, the state public utilities commission (CPUC) recommended slashing $23 million out of CAISO's claimed revenue requirement of $244 million.

David Cohen of Navigant Consulting said he would have cut $45 million. Cohen tracked CAISO's employee count for 12 months, beginning in Sept. 2000, and concluded that the agency ran an average of eight to 10 percent in unfilled but budgeted positions over the period. In that light, Cohen described CAISO's proposed 2002 budget as proposing a "staggering increase" in full-time employees. (See Fig. 5, ISO Personnel Costs)

CPUC witness Manuel Ramirez noted that CAISO's budget for just managing transmission rivaled the cost of the service in its own right:

"It is worth noting," he said, "that Southern California Edison's recently filed transmission owner tariff case requests a transmission revenue requirement transmission of $207 million." (See FERC Docket ER02-250, testimony filed 3/25/02)

RTO West: Locational Prices With Traditional Dispatch?

The biggest fight between traditional utility practice and FERC's new-fangled SMD is playing out in the Pacific Northwest.

That's where the sponsors of RTO West have proposed a novel structure designed to preserve current rights under pre-existing transmission contracts, and to dispatch generating resources in a traditional manner not grounded on competitive bidding.

The RTO West plan would allow hydroelectric plant operators to honor historic obligations related to agriculture, reservoir operation, conservation, and wildlife management.

At the same time, however, RTO West would propose to solicit bids to manage congestion and create locational-based prices (LBP) with financial transmission rights. The locational price would equal the nodal price difference between the injection node and extraction node for any power transaction. As stated however, dispatch would remain completely independent of LMP.

That would make RTO West markedly different from the Northeast grid groups.

In the Northeast, and under FERC's SMD concept, the RTO gathers competitive bids from suppliers, and then "crunches" them using a computer run that schedules or rejects each bid based on a simultaneous ranking that reflects both price and the constraints of the grid. The process yields a set of locational, nodal "shadow" prices that reflects market preferences and physical realities.

The question, then, is whether the RTO West LBP model can make a market in financial grid rights that commands enough respect to allow the players to hedge congestion with confidence and to trade FTRs in a secondary market. 2

Will FERC accept this rather drastic reworking of its SMD? Local utilities see little choice in the matter. Listen to PNGC Power, a generation and transmission cooperative.

"The dominance of the hydro system