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Entergy on Edge

Can a single utility dispatch a regional grid system without a financial market?

Fortnightly Magazine - October 2005

version of an RTO, more or less free of FERC oversight. Nevertheless, the Duke and Buffett plans as proposed stop way short of the incredibly complex regime that Entergy has offered up. For the true student of utility regulation, the Entergy plan is the one to watch.

Consider the delicate political compromise that defines ICT construct. Under Entergy’s vision, the ICT would retain just enough independence as a third-party grid monitor to allow Entergy to propose a radical new variant of participant funding to set prices for transmission access and expansion. (FERC policy permits participant funding only for “independent” grid system operators, such as RTOs.) However, the ICT’s independence would not extend so far as to strip Entergy of its status as the transmission service “provider.” And so the state regulators would not forfeit their coveted authority to oversee the “retail” transmission function—with assets and costs included in the retail rate base as a bundled adjunct to retail distribution service—so that PUCs can review the efficacy of grid investments.

For example, the ICT would run the Entergy OASIS node and grant and deny access to Entergy’s lines, but only by using Entergy’s own data, models, and calculations of available grid capacity. It could “observe” how Entergy calculates and allocates costs, credits, and hedge rights arising from grid congestion and redispatch, but only as a hired contractor, with the utility setting its budget. Many believe this budget de pendence would lead the ICT to defer to Entergy, undermining its supposed independence. Also, the ICT would draft the “Base Plan” that dictates which upgrades are needed on the grid according to good utility practice to maintain reliability, but utility staffers would write up an alternative “Construction Plan,” meaning that Entergy could decide not to build the very projects that the ICT deems necessary.

This balancing act could give added leverage to state regulators—Alabama says it could mediate disputes between the ICT and the utility.

And if that were not enough, Entergy proposes for the ICT to re-examine and retroactively repudiate generation interconnection deals signed previously with IPPs, for those agreements lack Mobile-Sierra language to bar a unilateral contract modification. Thus, the ICT would conform older interconnection agreements with the new policy of participant funding for “supplemental” grid upgrades that go beyond what is needed in the ICT’s base plan to support reliability. The ICT would reclassify grid upgrades that were required to facilitate the interconnections, thus exempting the utility from some portion of the millions that Entergy would otherwise owe to reimburse IPP plant developers for footing the cost of those upgrades (to be paid, most likely, through credits against transmission service charges.)

This provision looks like a poison pill for FERC, since it appears to violate federal policy. However, Entergy admitted that without it, the costs of its overall ICT plan will outweigh all possible benefits for ratepayers in Louisiana. Commenting on the retail ICT case pending in Louisiana, consultant Stephen Baron (of J. Kennedy and Associates) raises serious doubts on whether this retroactive reclassification of costs—“the largest single source of benefit to