(May 2011) Entergy Corp. names vice president of federal governmental affairs; Black Hills fills two executive positions; plus senior staff changes at Alliant Energy, First Wind, UniSource...
Business & Money
utility. From a practical standpoint, two paths remain open for southwest Connecticut:
- Postage-stamp transmission financing. Try to get FERC approval to develop a transmission line with its cost borne by all the ratepayers of New England; for a given utility in a given load pocket, this is naturally the preferred approach. FERC is likely to stick to its "beneficiary pays" principles and deny this request, hence...
- License-plate financing. Develop a transmission line with its cost borne by the ratepayers in the constrained area. This is closer to FERC's "beneficiary pays" principles but still raises the issue of when such mandatory congestion relief would be ordered. New York has embarked on a variation on this theme, in which the load pocket's utility issues RFPs to extend a PPA to a generator or to a merchant transmission line to meet zonal requirements.
FERC will decide whether the RTOs with major load pockets (most of them outside the South) get to impose the postage stamp or will have to settle for the license plate. If FERC approves ISO-NE's request to rate-base the $600 million southwest Connecticut transmission project across all of New England, the postage stamp will be the favored mechanism for financing transmission and for relieving congestion, with huge implications for capacity values both inside and outside the load pockets.
How Much Should You Pay For Capacity?
What is a power plant worth? It depends on this evolving transmission policy.
Simply stated, the postage stamp will tend to equalize the value of capacity and put the RTOs in the position utilities have always been in-that is, they must use public financing to build transmission lines. The difference-and it's a big one-is that the RTOs have a bigger footprint and will do more to knit disparate control areas together. That is, in the minds of many, a pretty good angle of repose for power markets for the next 10 years or so. In this world, power plants are worth pretty much the same (given technology and fuel type), wherever they are located.
The license plate acknowledges the disparate economic realities of load pockets-that it is simply more expensive to bring power to cities, and there is no compelling social or political imperative to equalize electric costs between areas where it is easy to build generation facilities and areas where it is not. In this world, power plant values reflect much better the shrewdness of the locational choices of their developers.
If FERC sticks with the license plate principle and urges RTOs to socialize transmission costs sparingly, it will preserve the possibility of merchant investment in generation and transmission, and location will continue to be a dominant determinant of capacity values. If FERC veers to postage-stamp principles everywhere, then location will matter much less.
- Dow Jones, "Goldman Buys Cogentrix for Utility Contracts, Not Plants," Oct. 20, 2003.
Articles found on this page are available to subscribers only. For more information about obtaining a username and password, please call our Customer Service Department at 1-800-368-5001.