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Barriers to Transmission Superhighways

History teaches us that the most successful American businesses emerge from the crucible of competition.

Fortnightly Magazine - May 2006

designating exactly which of the thousands of lines it controls will be used for that purpose. To that end, the ISOs/RTOs have developed an elaborate series of rules and regulations governing how the differences in the capabilities of the transmission system will be reflected in energy and capacity prices. Energy prices are now “nodal” (the location-based marginal price principle) and capacity prices are becoming “zonal.”

The ongoing market design issue is how to incorporate substantial new transmission lines that have positive economic impacts and are not built solely for reliability. Should these new lines be seen as “point-to-point” in purpose, or should they be integrated into the overall “network”? The answer to this question has implications for the overall economic efficiency of transmission systems, and implications for cost allocation on the part of those who would use the capabilities of new transmission systems or projects.

First, there can be little doubt that the overall economic efficiency of transmission systems is optimized when point-to-point pricing is minimized. That was the whole point of the development of ISOs and RTOs. Thus, the general rule should be to apply network transmission service whenever possible. But the application of that general rule to new projects is not as simple as it might seem at first.

The laboratory in which the rules are being developed is, at the moment, in the transmission projects between New York and its neighboring control areas, New England and PJM. The most active process for developing reasonable rules is between PJM and NY-ISO.

The Meaning of “Firm” Transmission Rights

As part of its systematic development of rules for independent transmission projects, PJM has created a product called firm transmission withdrawal rights (FTWRs), which it defines as “the rights to schedule energy and capacity withdrawals from a Point of Interconnection … of a Merchant Transmission Facility with the Transmission System. FTWRs may be awarded only to a Merchant D.C. Transmission Facility that connects the Transmission System with another control area. Withdrawals scheduled using FTWRs have rights similar to those under Firm Point-to-Point Transmission Service” 2 (emphasis added).

If new projects are to become efficient transmission superhighways, FTWRs should make it possible for any generator in the original PJM footprint to deliver capacity to the DC bus serving the New York market. The exact meaning of FTWRs, however, was the subject of a series of exchanges between PJM and FERC over the Neptune project. These exchanges may be summarized as follows:

1. In early 2005, in a series of orders governing the Neptune project’s PJM interconnection costs, FERC noted that FTWRs had “elements of deliverability” whose extent would be further defined as specific transmission customers sought service to the Neptune bus. At that time, Neptune’s sole customer, the Long Island Power Authority, had not yet selected a PJM generator for service across Neptune. 3

2. In its initial responses to Neptune’s emergence (scheduled for mid-2006) as a withdrawal point, PJM proposed that a generator seeking to deliver capacity services to the Neptune bus would have to file a point-to-point service request. 4

3. In