Contrary to conventional wisdom, electricity demand isn’t immune to price elasticity, and rate designs can encourage conservation. In particular, inclining block rates coupled with dynamic pricing...
Barriers to Transmission Superhighways
History teaches us that the most successful American businesses emerge from the crucible of competition.
the summer of 2005, however, PJM also began to develop its transmission enhancement cost-allocation policy. In that effort, PJM proposed that the load being served by Neptune’s customers effectively would constitute load in PJM, and as such would have to bear a share of the PJM regional transmission expansion plan reliability costs. 5 Such an allocation of the cost of maintaining the reliability of the network, however, would seem to carry with it a right to use the network’s services.
It is important for the future development of a more competitive power market that this unfolding transmission cost-allocation process in PJM (and elsewhere) not develop into a new form of rate pancaking. An LSE should be able to use a properly permitted, new independent transmission line to purchase energy and capacity in a neighboring control area without a lot of complications. Paying twice for anything in this construction simply will not work to accomplish the task at hand, which is to build more transmission superhighways.
In essence, it should be possible to move the purchasing point of an LSE from one control area to another, as long as the applicable reliability criteria are met. The new transmission project can open a new, wider door to a neighboring control area just as a new superhighway can widen the door for other commerce between the states. The new transmission project’s customers can and should pay for the reliability upgrades needed to maintain the firmness of the product (FTWRs) they are purchasing. In return, the customers should get to choose between network and point-to-point service. 6
Seen in this way, an independent transmission line to another control area offers customers a diversification of transmission pricing risk, and as such should be seen as a welcome and security-enhancing development.
A reasonable and coherent policy on the allocation of costs to new transmission entities might look like this:
1. A new transmission project pays for its impact on the grid, as the grid is on the day of interconnection, via its interconnection cost.
2. Once the project is in the grid, it becomes part of the calculus of how much new transmission is needed. The cost of that new transmission is usually covered by transmission enhancement charges that are imposed on transmission owners, who in turn pass them on to load-serving entities (recognizing that these are often the same organization), who pass them on to their customers, the final consumer.
The interconnection cost is, in essence, the initiation fee for access to a regional transmission grid. The ongoing payments for transmission enhancements needed to maintain reli-ability are, in essence, the annual membership fee. With these simple and fair “rules of the road,” the way will be clearer for the development of more inter-regional transmission superhighways.
1. The interstate project may not follow the usual interconnection process for a new independent transmission line. Instead, it may be incorporated into the PJM regional transmission expansion base plan as a long-term reliability project, and be funded via an overall increase in the PJM network service charge. Which financing