How rules muted price signals and did not ensure efficient siting.
Of the new rules proposed by the Federal Energy Regulatory Commission (...
Gen Interconnection: Lessons From New England
the Maine plants could not operate at economic levels due to transmission congestion (, the Maine plants were constrained down). ISO New England has calculated these costs at approximately $55 million during just several hours of transmission congestion since June 2001.
We cannot turn back the clock on this situation. It is very likely, however, that different siting decisions would have been made if LMP were in effect, and developers had available to them historical and projected LMP information. Substantial investment in the New England bulk power system may have been redirected to other critically important sub-areas in the region such as southwest Connecticut and greater Boston, where congestion has increased consumer costs in the region.
If FERC should move ahead with its gen interconnection rule, but without integrating the rule with full LMP, as that term is understood in the commission's companion effort to standard market design (SMD) for wholesale power markets, then we likely will see the New England experience played out in other areas of the country. Generation developers will lack critical information necessary for them to make the most economic business decisions, and may be subject to new mitigation procedures that substantially alter the economics of their investment. These factors can prevent realization of the full benefits of competitive markets.
Everyone can learn from the New England experience. FERC should not implement the cost allocation provisions of the interconnection rule as proposed in its NOPR prior to the implementation of an SMD rule that adopts LMP as the standard for congestion management and market design. While implementation of the proposed interconnection procedure may be useful before the related cost allocation provisions are implemented, the proposed cost allocation provisions should await LMP. In establishing interconnection cost allocation rules for power plant projects during the critical transition period between current markets and proposed markets, FERC should consider mechanisms that would enhance proper long-term siting decisions while LMP rules and information are being developed. Power plant developers should anticipate in their modeling and power sales agreements not only the existing and proposed markets, but also the markets as they will evolve. Customers should carefully structure their power arrangements through the transition period to reflect how congestion is likely to be addressed before implementation of SMD. For state officials, any retail restructuring initiative and siting decisions should consider and address issues as they appear under current rules and might appear under proposed rules, and also as they may develop during this critical transition period. It is only through careful consideration not only of where we are now and where we want to go, but also how we will get there, that proper siting of new generation will foster full and broadly competitive markets for years to come.
- See § 11. Section 10 states that the generator is also responsible for all of the operating and maintenance expenses for the generator's and the transmission provider's interconnection facilities.
- § 11.4.
- LMP is now anticipated to be implemented in NEPOOL later this year or early next year.
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