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

Frontlines

How Einstein discovered relativity, locational pricing, and participant-funded transmission.
Fortnightly Magazine - February 1 2003

all-pervasive ether. This ether lacked substance but was considered real enough to give the appearance of a structural architecture. Like regulated transmission, it offered an engineering benchmark by which to judge the position and worth of any object in the cosmos.

Michelson and Morley even set up an elaborate experimental apparatus in Cleveland in an attempt to measure the velocity of the Earth as it sped through the ether, by measuring the difference between the upstream and downstream speed of light, just as a swimmer pulling against a current would seem to go faster than in calm water.

But the experiment failed. The two streams of light showed no measurable difference in velocity. Michelson and Morley succeeded in fixing time and space as artificial benchmarks, but in the process learned nothing about the true speed of light.

SOME NOW REALIZE SMD'S FAULT LIES NOT WITH LMP BUT IN EFFORTS TO REGULATE TRANSMISSION EVEN AS GENERATION GOES FREE. Their reasoning is simple and elegant. They argue that if a power producer builds a merchant generating plant to capture a market advantage, then any new transmission line build to accommodate that plant-even if required in the name of "reliability"-is in truth every bit as much of a "merchant" or "economic" investment as is the plant itself. Indeed, the line could well be characterized as a generation asset. To fund that line through regulated or socialized rates would create a publicly funded subsidy for the accommodated plant, giving it an advantage over a comparable merchant plant that would not require a grid expansion to facilitate operations.

This new way of thinking has taken hold in the Southeast, where industry groups working to form the SeTrans regional transmission organization describe the notion as "participant-funded transmission." They would rely on private capital to build "economic" transmission and let the investors reap the rewards. The old paradigm of planning and regulation would extend only to so-called "reliability" transmission.

Working for SeTrans, Consultant Michael Schnitzer from the Northbridge Group urges FERC to treat transmission expansion as a non-merchant project only when absolutely necessary to keep the lights on:

"The load is forecast. You run the load flow models. You apply the security and reliability criteria. And if there are places where you need transmission investment because you just can't serve the load, then those are [socialized]."

Schnitzer counters that anything else will undermine LMP. After all, a new power plant and a new transmission line are both solutions to the same problem. To put the private money of a merchant generator in direct competition with ratepayer money belonging to a transmission provider who is supposedly "independent" from the market (the FERC's vaunted "ITP") will distort LMP and distort markets, as he explains:

"Anything that's not reliability we leave in the participant-funded pot, because that's part of the interplay between generation and transmission in finding the competitive solution that's lowest cost.

"We've got LMP's which give price signals, but this is how we actually make it real for new generators that there's a transmission consequence to where they locate."

Southern