Public Utilities Reports

PUR Guide 2012 Fully Updated Version

Available NOW!
PUR Guide

This comprehensive self-study certification course is designed to teach the novice or pro everything they need to understand and succeed in every phase of the public utilities business.

Order Now

FERC's Market Design: The End of a 'Noble Dream'

How state opposition cowed the feds and turned a powerful rule into just a set of talking points.
Fortnightly Magazine - February 15 2003

fair competition between generation, transmission, and demand-side resource solutions to congestion."

At the same time, however, these states fervently oppose LMP and market pricing for energy as unworkable for their own constituents. Meanwhile, the states that prefer traditional rolled-in pricing over participant funding, such as North Dakota, tend also to favor postage-stamp pricing over license-plate pricing.

States in the West and the Great Plains generally prefer socialization of grid expansion costs over the broadest possible region, as they must seek to open up their resources to boost power exports to urban consuming areas. In the words of the Crescent Moon grid group, they fear that FERC may be "backsliding" in favor of license-plate pricing and ignoring its original vision of wide-area, pancake-free pricing.

The Louisiana PSC has panned SMD outright. It sees disaster in any mandatory plan to force utilities to divest themselves of transmission assets to form independent transmission providers (ITPs), as FERC would require through its market design. Yet two Entergy utility subsidiaries, in a pending case in that state (La. PSC Docket No. U-25965), have offered studies showing that any plan for them to join either SeTrans (planned as an RTO) or the Midwest ISO (already RTO-certified) will likely increase costs unless the deal is coupled with a PFT policy that compels new merchant generators to pay for grid expansions they need for new power plants. The plan offers an alternative to traditional rolled-in pricing, which would impose the costs of such expansion on retail ratepayers of transmission-owning utilities.

In a similar example, the Southeast Association of State Utility Regulators (SEARUC) commissioned a study from Charles River Associates that found virtually no consumer benefits from a SeTrans RTO without participant-funded transmission.

FERC indicates a willingness to allow participant funding, but only for new transmission facilities that are included in a regional planning process conducted by an independent grid operator, be it an RTO, ISO, or ITP. And therein lies a key issue: Can participant funding exist on its own, outside the rest of the SMD framework?

In Arkansas, the commission says there are times when participant funding needs to be supplemented by transmission planning studies, and when rolled-in pricing might be warranted "on a limited basis." For example, a grid expansion plan funded by one merchant generator might end up benefiting several such new plants in the same region. In that case, Arkansas says, the ITP would need to develop a cost-sharing protocol applicable to all merchant plant beneficiaries.

Consider another example offered by Arkansas regulators:

A new merchant power plant might require a network upgrade, achievable with a new line with capacity of either 138 kV or 230 kV. This merchant plant might well choose to select the smaller upgrade in order to leave some congestion intact and optimize the value of CRRs, even if the 230-kV option would eliminate 100 percent of the congestion (driving CRR values to 0) at only a slightly higher construction expense.

"In such a case," says Arkansas, "the ITP may wish to require the 230-kV expansion option but only charge the merchant