[BETA] Fortnightly

The venerated process may get a makeover.

Like dough in the hands of a crazed pizza chef, merchant power generators have been tossed and turned in tumultuous markets over the past two years. Further uncertainties over market restructuring have pushed many merchants to the brink of despair-and beyond.

But on June 10, 2003, a glimmer of hope appeared at the Federal Energy Regulatory Commission (FERC), and it came from an unexpected source: Entergy Services Inc., the holding company for Entergy's regulated utilities.

Entergy's petition proposes to change the way the company sources its week-ahead power supplies so that its own plants would compete fairly against wholesale power merchants.

Entergy's petition barely showed up on the radar screens of industry watchers, but it represents a shot over the bow of the industry's established economic-dispatch processes.

Utilities have been dispatching their supply resources on an economic basis for decades. But they have typically included only their own plants or generation sources under contract. In most cases, economic dispatch processes have not considered merchant plants that might be able to supply power more economically.

If granted by FERC, Entergy's order could serve as a catalyst to reformulate the industry's venerated economic-dispatch protocols. And now might be just the right time for such a catalyst. Re-cent noises on Capitol Hill suggest that legislators and regulators will be receptive to the idea of expanding the definition of economic dispatch.

Creole Controversy

Entergy has been feeling the heat lately, and it has nothing to do with Loui-siana's steamy climate.

In the wake of a controversy over Entergy's power procurement practices, the Louisiana Public Service Commission (PSC) has been undertaking a study to examine the way Entergy plans and deploys supply resources. The PSC launched the examination after Entergy sought to conceal the results of its recent competitive bidding program, even after the utility selected its own affiliates as the winning bidders.

At about the same time, a study published by the Louisiana State University Center for Energy Studies as-serted that Entergy customers could save $825 million in 2003, and $926 million in 2006, if merchant plants began to displace Entergy's older units (see Figure 1).

Moreover, the study suggested that the status quo in Entergy's service territory deters merchant plant investments. "Incumbent utilities' investments in generation can provide a powerful economic incentive to operate their monopoly transmission systems to favor their own utility affiliated generation, and to discriminate against non-affiliated generators," the report said.

For its part, Entergy argues that it has bent over backward to bring merchant generation into the mix. (The company declined to comment for this story, citing the fact that its petition is still being processed.) Nevertheless, Entergy's petition proposes to establish a process under which third-party power supplies will compete against Entergy's own non-nuclear generation sources to supply the utility's native load on a week-ahead basis. Furthermore, Entergy would move weekly procurement decisions from its regulated wholesale merchant function to its transmission function, and would establish "independent oversight" of the process.

Entergy is advancing this proposal as an interim solution, rather than a