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Long-Term Transmission Rights: A High-Stakes Debate

The absence of long-term transmission rights could exclude potential competition—and cause higher electricity costs.

Fortnightly Magazine - March 2006

of the future prices that they would receive for their products; and these prices would, of course, reflect expectations about future transmission congestion.

Without the advent of LTTRs or of long-term locational futures markets, some elements of the future are clear. Referring to transmission price risk and generation investment, the FTC has noted that “when risk is high and cannot be hedged, potential entrants generally need a higher expected profit level (to compensate for the increased risk they bear) before they will enter.” 39 This means that, in the absence of sufficient LTTRs or futures markets, the costs to consumers of future generation will be higher than they would otherwise be because generation investors rightly will demand risk premiums to compensate for the uncertain cost of power delivery.

 

Endnotes:

1. Federal Energy Regulatory Commission, Notice Inviting Comments on Establishing Long Term Transmission Rights in Markets with Locational Pricing, Long Term Transmission Rights in Markets Operated by Regional Transmission Organizations and Independent System Operators, Docket No. AD05-7-000, May 11, 2005.

2. See, for example, the Comments of Association of Businesses Advocating Tariff Equity and the Coalition of Midwest Transmission Customers, California Department of Water Resources State Water Project, California Municipal Utilities Association, Sacramento Municipal Utility District, and Transmission Access Policy Study Group. In this and subsequent footnotes, the “Comments” are those filed by various parties, on or about June 27, 2005, in Docket No. AD05-7-000.

3. Comment of American Public Power Association, p. 9.

4. Comment of the staff of the Federal Trade Commission, pp. 4-5.

5. Comments of American Public Power Association, p. 19; Electricity Consumers Resource Council and the American Iron and Steel Institute, p. 2 and p. 5.

6. Comment of First Energy Solutions, p. 10 and p. 13.

7. Comment of New York Independent System Operator, p. 2.

8. Comments of American Electric Power, p. 2; and ISO New England, p. 1.

9. Comment of PJM Interconnection, p. 6.

10. Ibid., p. 7.

11. Ibid., p. 8.

12. Comment of Public Service Commission of New York, p. 2 and p. 5.

13. Comments of Edison Electric Institute, pp. 2-3; New York Independent System Operator, p. 1; Southwest Power Pool Regional State Committee, p. 2.

14. Comments of Coral Power, p. 1; ISO/RTO Council, p. 3 and pp. 6-7; New York Transmission Owners, p. 2; and Tenaska, p. 2.

15. See, for example, the Comments of American Public Power Association, California Department of Water Resources State Water Project, California Municipal Utilities Association, Electricity Consumers Resource Council and the American Iron and Steel Institute, Sacramento Municipal Utility District, Silicon Valley Power, and Southwest Power Pool Regional State Committee.

16. See, for example, the Comments of American Electric Power, DC Energy, Edison Electric Institute, First Energy Solutions, Morgan Stanley, New York Transmission Owners, Pacific Gas and Electric, PJM Interconnection, Reliant Energy, and Southern California Edison.

17. Comment of Los Angeles Department of Water and Power, p. 5.

18. Comment of Transmission Agency of Northern California, p. 4.

19. Comment of ISO New England, p. 20.

20. Comment of the Midwest Independent