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Commission Watch

FERC's AEP ruling begs the question: Can the feds bypass states that block transmission reform?
Fortnightly Magazine - January 2004

Council (NERC):

"The underlying LMP algorithm explicitly uses up-to-date shift factors-accounting for day-to-day topology changes-associated with each modeled generation unit to assess such generator's impact on a modeled constraint," he noted. That part of the algorithm explicitly produces components of LMP that represent congestion effects, Tabors added. It makes LMP more accurate because the LMP prices that result from a real-time security-constrained economic dispatch process (SCED) are directly related to actual, close-to-real-time shift factors and the associated generator's impact on each modeled flowgate constraint.

By contrast, as Tabors explained, a TLR-based system would rely on the power transfer distribution factor of the transaction, or the relative impact of the power flow across the flowgate. But Tabors called the TLR-based system an "economically inefficient" way of relieving a constraint, because it does not take into account the costs of redispatching to ease the constraint. Instead it forces a more inefficient redispatch by not allowing for the least expensive redispatch option to be implemented.

Thus, Tabors argued that a separate isolated control area of such size as AEP could influence the extent of congestion across a number of regional flowgates in an even greater manner than the static shift factors might indicate. So if AEP were allowed to operate its own congestion management system, he said, it would have the potential to significantly influence congestion both positively and negatively across flowgates within the region.

The SECA Surcharge: Softening the Blow?

With voiding of regional and company-specific through-and-out transmission rates, FERC breaks new ground on several fronts. Most importantly, the commission rejects a tariff not for reasons outlined in the Federal Power Act (unjust, unreasonable, or discriminatory), but on a hopeful theory-that because RTORs and T&Os represent artificial barriers to trade, their elimination should produce greater market efficiencies and, in the long run, positive cost savings for consumers.

In addition, however, the approval of the SECA surcharge to allow the affected utilities to recover the lost revenues through a different tariff assessed to a different class of customers appears controversial as well. That's because the SECA surcharge poses some problems in administration and carries with it a host of worries common to the design of other utility tariffs, timing differences, cost shifts, and intergenerational equity.

Opposing parties offered a number of reasons against attempting to recover the lost revenues one-for-one through the SECA, which takes the form essentially of an added license-plate transmission rate, to be imposed on customers in the zone (control area) in which the power transaction sinks, designed to match the total revenues that would have been collected otherwise on interregional transmission paths. Importantly, however, there would be no need to prove that customers paying the new SECA surcharge were the same ones who would have subscribed to transmission service subject to the voided RTOR or T&O charge, raising concerns of equity, among others:

  • Timing Differences. Demand growth in the sink zone could add customers and load to the SECA charge base, causing the surcharge eventually to over-recover the eliminated RTOR and T&O revenues.
  • Cost Shifting. In some cases, power wholesalers would