PJM would dictate grid expansion, even if not needed for reliability, and then push the cost of the upgrades on those who use them the most.
Chairman Pat Wood and his...
Coal's Raw Deal
The bias in RTO markets, and how FERC might fix it.
Here's an idea: Keep a certain percentage of transmission capacity separate from the RTO market, and make it available for long-term physical grid rights.
Yet experts say that such "carve-outs" erode the efficiency gains from LMP and a bid-based, security-constrained dispatch. FERC apparently agrees, as it has spent much time and effort attempting to limit the extent to which utilities can retain their grandfathered transmission contracts once the RTO moves to a so-called "Day 2" market. (See, e.g., 108 FERC ¶61,236, Sept. 16, 2004.)
Responding to FERC's request, the Sacramento Municipal Utility District (SMUD) claims that the problem of carve-outs eroding efficiency "is easily avoidable" if physical rights holders are given tradable rights. That, says SMUD, would encourage resale of unused contract rights in a secondary market, avoiding phantom congestion. SMUD cites the example of the WesTTrans (www.westtrans.net), a voluntary group of electric transmission operators in the Western Interconnection. SMUD claims that WesTTrans operates an OASIS site that, contrary to the norm, allows potential transmission service customers to query information from each provider at one time, rather than individually, which facilitates resales of physical grid rights.
SMUD's proposal typifies the feeling out West, where grid operators rely largely on a physical-rights model. SMUD adds, for instance, that the fledgling GridWest group plans on using physical transmission rights.
In any case, even MISO, borrowing heavily from PJM's design to build its own market, has conceded that absent any long-term rights to transmission, it seems likely that new or incremental investments in capacity "are likely to be suboptimal."
Working Within the System
Can the RTOs retain their purely financial grid rights, but simply offer FTRs with longer terms, to help out the coal plant developers?
Five years ago, the New York ISO had offered two- and five-year TCCs allocating as much as 15 percent of system-transfer capability to the five-year rights. Demand was lackluster, however. According to DC Energy LLC, only seven participants bought 2-year TCCs at the Spring 2000 auction. That number rose to 20 in the Fall 2000 auction, with 5-year TCCs awarded to 9 participants. Prices lagged accordingly. Two-year TCCs for transactions from Zone G (NYC) to Zone J (Hudson Valley) cleared in the Fall Auction at an average of $1.87/MWh. The equivalent TCCs for