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Capacity Planning: The Good, the Bad, and the Ugly

Market-Power Tests: A review of FERC’s market-based rate (MBR) screens, from theory to application.

Fortnightly Magazine - July 2005

effective at mitigating market power.

The Bad

The WMSA has replaced the SMA as an assessment designed to fail transmission-owning utilities located outside of centrally-dispatched RTOs ( see sidebar “Designed for Failures” ). The bias of the WMSA is highlighted by the case of Tampa Electric Co . Tampa has no wholesale customers connected to its transmission system; therefore, it has no customers on its system over which it could exercise market power even if it did have market power on its system. Tampa serves two small municipal customers with less than 25-MW total peak load on neighboring Florida Power Corp.’s transmission system, an area in which Tampa easily passes the WMSA. The contracts were cost-based and approved by FERC. But these customers dynamically are scheduled into Tampa’s control area, where Tampa failed the WMSA despite available imports being more than 40 times the wholesale load. Tampa now finds itself (as of this writing) in a Section 206 refund proceeding for its control area even though the only customers “in” the area have only 25 MW of load, could be served by many alternative suppliers, and are connected to a transmission system where Tampa passes the WMSA.

FERC declares that recent decisions regarding Avista and Idaho Power are examples that the WMSA is not designed for utilities to fail. 7  Avista is an atypical case. Its control area has sufficient transfer capability to supply the control-area load completely from generation outside of the control area, and it owns only about one-half of the generation inside of the control area. Given the facts, Avista rightfully passes the market-share screens.

Idaho Power’s case is not such a simple matter. It passes the WMSA for its control area not so much because it has substantial transfer capability, but because of how utilities are allowed to treat hydroelectric capacity in the analysis. For most generation, FERC now is insisting on using “nameplate” capacity. 8  But for hydroelectric capacity, applicants can use average production levels for the past-five years. 9

This makes sense for run-of-river hydroelectric generation. But much of the hydroelectric generation in the West has significant pondage, so that utilities can use a substantial percentage of capacity during peak periods and substantially less during off-peak periods. In the case of Idaho Power , the effect of using the average production levels is that Idaho Power had no uncommitted capacity in the summer and very little in other seasons. If nameplate capacity were used instead, there is a significant likelihood that Idaho Power would have failed the WMSA in its own control area.

Simple adjustments also would result in Idaho Power failing market-power screens in the Sierra Pacific control area. Under the WSMA, exports from Idaho Power to Sierra Pacific are allocated based upon the uncommitted capacity in the first-tier control areas. First-tier control areas for Sierra Pacific include PacifiCorp East, Bonneville Power Administration, Los Angeles Department of Water & Power, California ISO, and Idaho Power. Given this group of control areas and the amount of generation in these areas, Idaho Power had a