Planned or Private?

 

 

The case for participant-funded transmission.

There's not much funny about electric transmission. But that didn't deter James Pope, chairman of TANC, the Transmission Agency of Northern California, and director of Santa Clara's Silicon Valley Power, from trying out a little humor. Speaking at the Federal Energy Regulatory Commission in Washington, D.C., on Dec. 3, at the FERC's all-day technical conference on congestion revenue rights (CRRs), Pope managed to crack up the morning audience with the sort of wit that could come only from a veteran of California's utility industry:

"The only substitute for electricity," he offered, "seems to be darkness. And that's not a very good substitute."

Pope's quip might appear irreverent. Yet the key to success for FERC's standard market design (SMD) may well lie in deciding which electric industry assets are interchangeable, and what that means for regulation.

In particular, the evolution of locational marginal pricing (LMP) and other ideas in FERC's SMD have caused utilities and regulators during the past six months to warm to the idea of the electric grid as private property. This change in thinking comes from all over. It comes from the Northeast United States (New York, New England and PJM), as one might expect, where they love the SMD. But it also comes from the Southeast, where many disdain the notion of electric competition and newfangled markets. You could see the change as well back in November, at the FERC's prior conference on pricing policy for transmission network upgrades and expansions.

This new view sees the grid not in terms of zones, regions or voltage levels, but instead in terms of beneficiaries. Ask whether a given transmission line or project is built (a) to maintain reliability, for the public at large, or (b) to grant access to markets for a profit-seeking generator, as a single market player. The one is "reliability transmission," eligible for traditional rolled-in embedded-cost rates and socialized pricing, and is planned top-down according to good utility practice by the regional transmission organization (RTO) or independent transmission provider (ITP). The other, however, is "economic transmission."

It's a different animal entirely. It doesn't depend on a finding of certificate of need. It doesn't fall under traditional regulation. It doesn't get rolled-in pricing.

It survives not on planning or public subsidy, but on private initiative and "participant funding."

To borrow Pope's analogy, recall that transmission, as an improvement over darkness, can actually serve fairly well as a substitute for generation. And so if generation becomes competitive, why not the grid?

In short, many now believe that if we put our faith in competitive generation and locational pricing, then we have no choice but to treat much of the grid as a privately funded merchant asset.

Two Flavors for the Grid

The Southeast-bastion of traditional utility regulation-now leads the push for participant-funded transmission (PTF). Consultant Michael Schnitzer (Northbridge Group), representing the proposed SeTrans RTO, laid out the idea at the FERC's November pricing conference. "What SeTrans basically says is there's two generic kinds of transmission investments: those that are necessary