(November 2008)Economic uncertainties are raising doubts over utility returns. Will regulators feel the need to consider broader economic effects when engaging in ratemaking? While...
Coal's Raw Deal
The bias in RTO markets, and how FERC might fix it.
would be about $80 per MWh.
(For the full text of the letter, see Comments of Midwest TDUs, FERC Docket No. AD05-7, filed June 27, 2005.)
This problem occurs if a load-serving retail utility invests in a base-load coal unit but lacks FTR hedging coverage, or must pay full value to buy it. Voicing near-identical concerns are groups such as ABATE (Association of Businesses Advocating Tariff Equity), the Coalition of Midwest Transmission Customers (CMTC), and the Transmission Access Policy Group (TAPS). To quote attorney Robert Weishaar, Jr., representing ABATE and the Coalition, the investment or contracting decisions "are skewed against the coal unit."
Under typical RTO practice, neither the power producer nor the load-serving utility reserves or acquires physical transmission rights for a transaction, either short- or long-term. Instead, the payment of a regional grid access charge (a zonal "license-plate rate in the typical case) will suffice to guarantee delivery. If congestion arises, the parties simply "buy through" it. They pay the locational marginal price, and can hedge that risk by acquiring FTRs, which pay back the cost to the holder. But the cost of the hedge can eat up coal's advantage. And the FTRs will cover only short terms of one month, six months, or 12 months, at the longest. If you want a longer FTR, to hedge the 30-year useful life of your coal plant, you are out of luck.
This bias against coal has not gone unnoticed on Wall Street. In