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Commission Watch

PJM would dictate grid expansion, even if not needed for reliability, and then push the cost of the upgrades on those who use them the most.
Fortnightly Magazine - June 15 2003

period. Thus, the merchant line effectively leaves the LSE with $150,000 per year of congestion [5 percent of $3 million].

"However, if the cost of the LSE's FTRs was included in PJM's cost-benefit analysis … PJM would evaluate economic upgrade options against an annual cost of $1.15 million, rather than against the actual $150,000 per year attributable to unhedgeable congestion. [However] there would be no market response to mitigate the $1 million per year attributable to the LSE's hedge (FTRs) because there would be no need for further hedging [because all hedgeable congestion has already been mitigated] and therefore, no customers for any new FTRs that a supplier could create."

The Delaware municipal utilities find it chilling that PJM must impose top-down planning to save an unhedgeable risk. That suggests, says DMEC, "that the whole locational marginal pricing model [LMP] is flawed and inappropriate for this or any other RTO."

RTO Hegemony?

Jurisdictional questions appear more troubling than simple spats over PJM's six-step planning protocol.

For example, the FirstEnergy subsidiaries Metropolitan Edison, Pennsylvania Electric, and Jersey Central Power & Light (formerly with GPU) argue that PJM (and FERC, too!) lack legislative authority to compel construction of transmission for purely economic purposes, unrelated to reliability. That's so, they say, because the current law and FERC's RTO policies (Order 2000, and so on) envision federal intervention only to remedy undue discrimination under sections 205 and 206 of the Federal Power Act.

APPA agrees with First Energy that RTOs cannot legally sponsor any grid upgrades designed strictly for economic advantage. So does Con Ed, along with Central Hudson Gas & Electric, the New York Power Authority, and other utility transmission owners from New York.

As they explain, RTO relief of so-called "uneconomic congestion" distorts the competitive playing field, directly interfering with manipulating LMP-the core principle of PJM's market.

How can RTOs stay independent if they remain free to manipulate LMP to their own liking? Yet, paradoxically, that seems to be exactly what FERC requires.

As National Grid explains, during the past several years FERC has rejected at least two transmission planning proposals in which the RTO would distinguish between planning for reliability and economics.

Ironically, the consumer advocates for Ohio, Maryland, and Pennsylvania actually prefer that PJM take control over economic grid projects:

"This process," they say, "will offset the self-interest calculation that has provided a disincentive in the past for companies with interests in energy markets to undertake projects that eliminate profitable congestion."



In Brief . . .

  • Gas Hedging Profits. Missouri regulators denied permission to Laclede Gas Co. to retain approximately $4.9 million in proceeds from the sale of call options exercised by the local gas utility as gas prices spiked during the winter of 2000-2001. They found "no reason" to allow the utility to share in "illusory profits" earned in trading at the same time that consumers were forced to pay prices that "soared."
  • Purchased Power Costs. Wyoming regulators turned down a bid by PacifiCorp to employ a series of "excess power cost" surcharges to recover unexpected purchased power costs from the