A few months back, the Federal Energy Regulatory Commission directed Deutsche Bank Energy Trading LLC to show cause why it shouldn’t be assessed a civil penalty of $1.5 million and be made to...
be better from the ratepayer's perspective to keep the category of enhancements that PJM can direct as small as possible."
With its proposal, PJM would impose a six-step process for deciding when to include an economic grid upgrade within PJM's regional transmission expansion planing protocol, or RTEPP. (Of course, this process would apply only for economic upgrades; not for upgrades needed to maintain reliability.)
- 1. Identify unhedgeable transmission congestion. (All hedgeable congestion is left to resolution through market mechanisms.)
- Eliminate any de minimus congestion events from step one (those that do not produce a certain "minimum accumulated cost").
- For all unhedgeable congestion that passes the step-two trigger, impose a one-year window during which time PJM will invite industry participants to solve the problem with market solutions, such as merchant transmission, distributed generation, or demand-side management.
- Study and measure potential benefits of relieving congestion that remains unsolved after step three.
- Determine the cost of RTO-mandated transmission expansion necessary to relieve the constraint.
- Identify all grid projects with step-four benefits outweighing step-five costs, and add them to PJM's regional transmission expansion plan (RTEP).
PJM explains that where necessary, it will "evaluate multiple hedging vehicles or patterns" and will calculate a weighted average to determine the extent to which a particular congestion event can be hedged. Yet the PJM plan still raises hackles.
Merchant generators such as Mirant accuse PJM of bias in favor of transmission solutions-one that will "quench" opportunities, "precisely where they are needed most," by making merchants wary of trying to compete against RTO-sponsored projects. NRG echoes Mirant's argument that introducing a locational element in markets for installed capacity (ICAP-as in New York) would prop up commodity prices and solve a lot of supposedly unhedgeable congestion.
From the opposite side, Virginia Corporation Commission General Counsel William Chambliss argues that much congestion owes its existence to the unfettered exercise of generation market power. Thus, he sees no benefit from a one-year window for market solutions. Neither does Delaware Municipal Electric Corp. (DMEC), which repeats oft-heard reports of rampant grid congestion across the Delmarva Peninsula.
Representing transmission-dependent utility systems (primarily co-ops and municipal systems), lawyer Susan Kelly of Miller Balis & O'Neil asks whether PJM will evaluate hedgeability on a physical or economic basis. As National Grid points out, any risk can be hedged for the right price.
National Grid then asks PJM whether it would ever treat the high cost of hedging against a particular congestion event as a trigger factor in identifying need for a supposedly unhedgeable economic grid upgrade.
But PJM answered on May 8 that adding the cost of hedging into the mathematical test of whether the upgrade benefits outweigh the avoided cost of congestion would lead to "absurd results" and cancel out the purpose of awarding FTRs to those who create new grid capacity:
"Suppose a load-serving entity [LSE] that faces congestion costs of $3 million per year buys FTRs from a merchant transmission owner for ten years at $1 million per year and that the merchant's line eliminates 95 percent of all congestion for the ten-year