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One Fine Reliability Mess

Infrastructure isn't keeping pace. So how to "help" the market without killing it?

Fortnightly Magazine - August 2005

It's a problem that is taxing the industry's brightest minds: What's the right price signal to bring forth enough infrastructure to maintain reliability over the long haul?

Moreover, if such a model exists, can it work without stifling competitive markets? In June, experts journeyed to opposite coasts to meet with regional grid operators, regulators, and staff from California, the Mid-Atlantic, and the Federal Energy Regulatory Commission (FERC) in a continuing search for answers. (See FERC Docket Nos. AD05-11 and PL05-7.)

And in this month's issue, former FERC Chairman James Hoecker and Robert McCullough address (a) the dearth of transmission investment across the country, and (b) reliability problems in California, respectively.

In the Northeast, the urgency for some sort of model to encourage investment in electric capacity accompanies an alarming rash of announcements of new power-plant retirements in the PJM region-linked in part to the pending merger between Exelon and PSEG. Such announcements leave grid operators with few options, particularly in specific localities where chronic grid constraints make supplies tight. While parts of PJM can boast of reserve margins of 20 to 30 percent, experts predict that power supplies could someday fall short without the right regulatory model to guarantee capacity adequacy.

Meanwhile, out West, Californians face even greater pressures. They lack the luxury of several years, which the East Coast enjoys, to solve the problem. Jim Detmers, vice president of grid operations at the California ISO, speaking at the conference in San Francisco, foresees difficulties next year.

"The summer of 2006," he warned, should see "potentially as much as 1,700 MW of new generation." However, he added, "there's at least an equal amount that could be retired, if not more. We're still working on the resource adequacy process."

In fact, acting FERC Chairman Joseph Kelliher, acknowledging the problem in early July, stated, "Southern California has the worst electricity supply outlook in the country, and FERC is aware of that."

Even as the supply outlook worsens in California and in parts of the Northeast, a big problem facing energy markets is the simple matter of finding out what supplies are in the pipeline. Many operators today, even with the advantage of RTO and ISO Web sites, with posted queues showing scheduled or promised plant development, cannot with any degree of accuracy predict how many projects actually will come to fruition.

This is the essence of the issue-how to develop a plan that encourages utilities to make the planning more transparent to market players so that new plants can be planned alongside the retirements. And, as one would expect in any market, one of the main points of debate currently among RTOs, regulators, and utility executives is whether energy companies will be compensated adequately for their participation in a capacity market.

New England: Anxious Politicians

In early July, several members of Congress wrote to chairman-elect Kelliher that they did not like ISO New England's proposal for a new centralized regional spot market for

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