You might have thought the Feds closed the book on any broad, region-wide sharing of sunk transmission costs—especially after FERC ruled last spring in Opinion No. 494 that PJM could stick with...
Entergy on Edge
Can a single utility dispatch a regional grid system without a financial market?
sort of regional market-clearing price, whether for energy, capacity, ancillary services, or short- or long-term reserves. Instead, the WWP solicitation pays suppliers as bid. There is no market to be found, whether hour-ahead, day-ahead, or real-time. But FERC in its guidance orders has said that is perfectly OK.
A Peculiar Auction
Perhaps the crucial hurdle lies in the “black box” nature of the WWP solicitation of energy offers from IPPs.
According to Entergy’s latest iteration, suppliers offering energy through the WWP protocol must include a number of cost elements in their weekly bids, including start-up costs, a heat rate, a gas price index, and a gas-basis adder. ( See Application of Entergy Services, Inc., FERC Dkt. No. ER05-1065, cover letter p. 38, filed May 27, 2005 .) However, the bids aren’t ranked by price, or any other standard protocol that Entergy has articulated precisely to potential bidders. Also, with a weekly settlement, instead of hourly, and with no contingent bidding (an second offer to sell to quantity Y to buyer B, if the first offer to sell to X to A falls through), merchants say they face much greater risk than in the typical RTO day-ahead auction.
According to consultant David DeRamus (Bates White LLC), testifying for Calpine, suppliers must submit offers containing some 19 parameters in all, but have no way of knowing how those parameters are ranked for the selection of the winning bids. That’s because, as Entergy’s Rick Smith, group president of utility operations, explained at the technical conference held in New Orleans, on Thursday afternoon, July 29, 2004, the company is looking to IPPs not so much for price, but for flexibility (in hours of operation, ramp times, and so forth), so as to mesh with dispatch of Entergy’s incumbent gen fleet:
“Now, Entergy’s units have high heat rates, that’s true,” says Smith, “but the ratio of their minimum block to their maximum capability is quite favorable and their ramp rates are favorable. It’s not saying that they can’t be beat by somebody else, but if you have a unit that has 200-MW minimum segment and a 500-MW maximum segment and a high ramp rate, and you have somebody else come in and say, I’ll bid you a 300-MW minimum and a 500-MW maximum, you don’t have the same flexibility.”
Thus, Entergy will dispatch resources to accommodate transmission service requests, but without a market price to compare the value of competing schedules.
Doubts still trouble the merchant gen community, as shown by this quote, taken from the same meeting, from Intergen Vice President Andy Shearer: “For instance, if I’m in PJM or I’m in New England, I know very well if I made it or not, because I get a price signal. … I offered my unit at $50 and the market is at $48. I was $2 off. Not exactly hard to figure out. … “I’m not saying that Entergy is doing it incorrectly. They may well be doing it precisely right. I just don’t know.”
Mississippi Commissioner Michael Callahan echoed that concern at a meeting held