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A Candy-Coated Grid

Incentives for transmission investment could boost postage-stamp pricing over license-plate rates.

Fortnightly Magazine - March 2006

Docket No. EL05-121.)

By contrast, take a look at the current fight within PJM over RTO-directed allocations among license-plate pricing zones to recover costs for grid upgrades mandated by the RTO through its RTEP process (Regional Transmission Expansion Plan).

In particular, in that case, consider the protest filed by Robert Patrylo, CEO of H-P Energy Resources LLC, on how PJM’s RTEP upgrades address many localized reliability problems but fail completely to deal with massive problems on three east-west 500-kV lines that form the backbone for macro-scale economic exchanges of power between the Midwest, on one hand, and Maryland, Washington, D.C., and Virginia on the other.

According to Patrylo, LMPs associated with congestion across these lines typically run about $44/MWh to the west, and about $83 to the east. “This is an enormous price differential,” he notes, “that shows no sign of abating.” (See Protest of H-P Energy Resources, LLC, filed Jan. 26, 2006, FERC Docket No. ER06-456.)

In short, Patrylo’s protest shows how RTO-mandated reliability upgrades, coupled with zonal cost allocations, can easily mask more fundamental inequities involving broad-based regional differentials in the delivered price of power.

In this case, even the Maryland Public Service Commission (PSC) has weighed in. In the PSC’s recent 10-year plan (2005-2014) for Maryland’s electric companies, the state commission observes that “the highest LMPs in all of PJM have bulls-eye centered near Frederick County, Maryland.”

Says the Maryland commission: “The PJM transmission system cannot support the energy imports that eastern PJM, and central and eastern Maryland in particular, desire to receive.”