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

service to acquire congestion revenue rights (CRRs) to guarantee the same degree of grid access.

And indeed, a state public utility commission (PUC) as progressive as Pennsylvania has gone on record opposing any erosion of CBM rights, as proposed in the SMD.

Particularly galling to state regulators and some others is that FERC itself seems so willing to waffle on details of SMD for some beneficiaries, even while coming down hard on others.

For example, the commission has announced that, in the interest of moving things along, it will accept regional market models that do not mesh perfectly with the SMD. Thus, in recent decisions that approved initial plans to get regional transmission organizations (RTOs) started in the Southeast (SeTrans) and out West (WestConnect and RTO West), FERC declared:

"We do not intend, in the final SMD rule, to revisit prior approvals or acceptances of RTO provisions because of possible inconsistencies with the details of the final rule. This Commission intends to take all appropriate steps at the final rule stage of the SMD to ensure that, to the extent we have already approved or conditionally approved RTO elements, these approvals would remain intact." ()

No wonder a state like Arizona asks why, "if the SMD rule will be trumped by RTO orders," it should not be allowed to devise a unique regional solution for its own constituents.

These and other concerns spell a heap of trouble for FERC's SMD. The issues are numerous-far too many to be listed here-but it is possible to outline several of the most significant questions that have been raised over the past couple of months by the nation's state regulators.

The Western Problem

Can the Western Interconnection live with locational marginal pricing (LMP) to reconcile transmission congestion and govern a spot energy market? That question continues to divide utilities and regulators out West, with no clear resolution in sight.

PG&E Corp., coming fresh from the California experience, where the state's independent system operator (ISO) eschewed a fully developed and security-constrained LMP model in its first disastrous fling with markets, now clearly prefers LMP, both in theory and in practice, across California and the West.

"There is no fundamental reason," says the company, "that makes LMP incompatible with hydro systems."

As PG&E explains, "PJM, New York, California, and New England all have hydro resources and pumped storage facilities that operate (or will operate) under LMP electric resources."

The company recognizes that early debates "raised concerns about centralized unit-commitment-based designs," including "overly complex optimization algorithms, limited transparency, large uplifts and no-load costs, a consequent departure from uniform price auctions." But since then, says PG&E, "the reliably successful experience in the New York and PJM day-ahead markets has lessened the scope of such fears."

Regulators from the state of Wyoming would appear to agree, but not so the Washington Utilities and Transportation Commission (UTC), which continues to insist, as do the utility members of RTO West, that LMP and hydro don't mix.

The reasons lie with the unique topology of the Western grid. As explained by the utility participants