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Business & Money

The venerated process may get a makeover.
Fortnightly Magazine - August 2003

complete answer to market structure questions. "The proposal in this petition is not a substitute for an RTO [regional transmission organization] and is not intended to replicate the SeTrans market proposal," Entergy's petition stated. "However, one benefit of the changes being proposed here is that they will serve as a first step toward such markets in the Entergy area."

Merchant players certainly welcome such steps, and they agree that their plants should be considered in utilities' economic dispatch processes. But they might greet Entergy's petition with a degree of caution.

"How much time will be spent on an interim proposal like Entergy's when your real goal is to get SeTrans running?" asks Julie Simon, vice president of policy at the Electric Power Supply Association in Washington, D.C. "If this becomes a red herring that forestalls SeTrans even more, it's not a good deal."

Glass Half Full

The merchant power industry is understandably frustrated by the continued state of uncertainty over market structure. "According to Order 2000 we were supposed to have RTOs by December 2001," Simon says. "Regulatory milestones have been missed that have had a huge impact on the industry's business model."

However, this same state of uncertainty-especially given the apparent demise of FERC's standard market design (SMD) efforts-is driving some merchant players to seek incremental improvements rather than all-or-nothing solutions.

"Whether the SMD moves forward or not, there are features that could be implemented in other ways that would give you 80 percent of the benefits of SMD," says Jolly Haydn, vice president of transmission operations for Calpine. "It may be easier for individual elements to gain traction than it is for the complete package."

Expanding the definition of economic dispatch is one such element, and indeed the idea is gaining traction in policy circles. In a March 5 House Energy subcommittee hearing, FERC Commissioner Nora Mead Brownell suggested that RTOs could be tasked with the economic dispatch function. "RTOs can perform economic dispatch over large geographic areas that will ensure the selection of least-cost generators," she said.

The House's omnibus energy bill includes an amendment by Rep. John Shimkus, R-Ill., ordering a study to analyze the benefits of including non-utility generation resources in economic dispatch procedures and to recommend a policy response. (Shimkus also had offered a more aggressive amendment that would have mandated regional economic dispatch, but he withdrew it during the bill's markup.)

At press time, the House energy bill faced an uncertain fate in the Senate. Nevertheless, proponents of expanded economic dispatch are encouraged by these policy trends.

"For it to be included in legislation shows that there's a much greater degree of interest in the subject than there was previously," says Larry Eisenstat, a partner with Dickstein, Shapiro, Morin & Oshinsky in Washington, D.C. "As people get to know the issue, they get more interested because they see it's a win-win. There's a way for utilities to be made whole, for ratepayers to get a better deal, and for the merchant sector to market some of its capacity."

Precisely how a redefined economic dispatch process