The case backlog of unprocessed electric reliability violations is growing out of control, threatening to “swamp” the industry — a sign, perhaps, that when Congress and FERC modernized the...
Coal's Raw Deal
The bias in RTO markets, and how FERC might fix it.
five-year terms cleared at only $0.66/MWh. Some say the ISO reserved too much capacity for the longer-term rights. Others say the market in New York was simply too new to inspire confidence.
In New England the RTO says only one participant has inquired explicitly about FTRs longer than one year. That participant serves load in Vermont, the only state in New England with vertically integrated utilities that retain a franchise obligation to serve load. (Five of the six New England states, says the RTO, feature retail access with service obligations of 12 months or less.)
The prime objection to longer-term FTRs is the added risk of default.
To issue a set of FTRs for auction, system operators must estimate grid network topology and predict conditions expected throughout the term of the right. They must conform the FTR issue to grid capacity (the "simultaneous feasibility" test).
According to the PJM RTO, events such as transformer outages or large-scale grid outages due to new line construction can affect long-run grid topology. Other relevant events might include power-plant additions or retirements at key locations, unexpected load growth, or changes in enrollments among retail-choice customers. In particular, the New England RTO bemoans the lack of forward schedules for planned transmission outages.
A retreat from license-plate rates also might affect FTRs. That raises concern for PJM, as FERC recently asked for comment on whether PJM's license-plate rate design might discriminate against new RTO members, such as American Electric Power, which has recently joined PJM. That's because developers who build new "reliability" transmission can socialize the costs across the entire region under PJM's RTEP system (Regional Transmission Expansion Plan). But AEP, which brought new high-voltage lines to PJM when it joined, must recover the line costs only from ratepayers within its license-plate load zone. (See 111 FERC ¶61,308, May 31, 2005.)
Another item is congestion revenue, which funds payouts to FTR holders.
In New England, the RTO notes a negative trend since October 2003, with congestion revenues consistently falling short of FTR payoffs for the most recent FTR auctions. PJM, meanwhile, notes no serious problems in shortfalls of congestion revenues, but offers data showing that FTR payouts historically have failed to match the target market value of FTRs (see Figure 2, “FTR Payouts in PJM.”)
These reports raise the issue of who bears the risk when revenues fall short.
Who Covers the Risk?
On page 15 of its white paper, the FERC staff asks whether LTTRs should be "fully funded," whereby any shortfall in congestion revenue would be recovered through uplift payments collected, perhaps from transmission-owing utilities (TOs). Ideas on this issue run all over the map.
Morgan Stanley wants fully funded FTRs, with the TOs passing costs through to ratepayers. This model describes the practice in New York, where the ISO issues fully funded rights. Full funding does not apply in PJM, however, where the FTR holder shoulders the risk. PJM thus argues that a buyer or holder of FTRs ought to be prepared to pay for the cost of a revenue shortfall as the price of