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Perspective

Emotions have run high in the SMD/RTO debate. It's time for cooler heads to prevail.
Fortnightly Magazine - June 1 2003

requirements identified through the PJM planning process to accommodate interconnection by new generation; and 2) as a result of baseline reliability needs identified through the planning process run by PJM in coordination with transmission owners and state agencies.

Naturally, all generation requesting an interconnection must pay for a safe interconnection to the substation level. However, as a consequence of PJM's interconnection process, some generators have an obligation to pay for network upgrades. That obligation arises if the interconnection studies performed by PJM determine the addition of the generation at the specified location would cause violations of planning criteria beyond the point of interconnection, and if the generator wishes to ensure deliverability in order to be counted as installed capacity resources. 2 The resulting upgrades to the transmission system are then performed either by the transmission owner in the area or by the generator itself, but always in accordance with state siting and permitting requirements.

Upgrades that occur as a consequence of the PJM planning process are the result of studies performed jointly by PJM staff and transmission owners. The results are then vetted with the broad PJM membership and submitted to the appropriate state agencies for their review. Once a plan has been approved by the PJM board of managers, the transmission owners involved in the facilities upgrades are committed to performing the upgrades, subject to state siting requirements. However, instead of relying on information supplied by the transmission owner and performed in a single utility context, the state authorities now are the beneficiaries of a plan that was independently developed with input from multiple parties and done as part of a multi-system or regional context and coordinated by an RTO that is financially indifferent to the results.

This process, though relatively new, already has yielded results, as the PJM board has approved more than $700 million in transmission upgrades. Of this, more than $500 million will be paid directly by generators for interconnection, and all of it will be done with state approvals, but without adding to the transmission cost rate base. This process, in fact, is probably the first real use of the "participant funding" approach to transmission upgrades. RTOs, Congestion, and Prices.

A casual observer might be led to believe that congestion is a new phenomenon created by restructured wholesale markets and RTOs. However, as most people know, congestion has been around almost as long as there have been transmission systems. In a vertically integrated monopoly, this congestion is managed by increasing or decreasing the output of certain power plants (redispatch) by running less costly units and turning down more costly units. The costs are then averaged and spread, or socialized, across the entire class of retail customers, and borne by them through base rates or through fuel adjustment clause charges.

The locational marginal price, or LMP system is, in many respects, similar to traditional methods of measuring congestion as it results from a security constrained economic dispatch; the same pricing system that results from the same dispatch done for the past 30 years. A single, vertically integrated utility