The Too-Perfect Hedge

Deck: 

Congress gives FERC an impossible task: Craft long-term transmission rights to save native load from paying grid congestion costs.

Fortnightly Magazine - May 2006
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If “perfect” be the enemy of the “good,” then look no further for proof than in Federal Power Act section 217(b)(4), enacted by Congress in last year’s landmark energy bill, EPACT 2005.

That section, as many see it, would grant a virtual long-term immunity against liability for transmission congestion costs—a “perfect hedge,” if you will—to any electric utility that retains the traditional obligation to serve native load (a load-serving entity, or LSE), even if that utility operates within the footprint of a regional transmission organization (RTO), and even if the RTO essentially has adopted a day-ahead spot market for wholesale power, complete with locational marginal pricing (LMP) and financial transmission rights (FTRs).

Before RTOs, the utility seeking base-load generating capacity simply would build its own power plant and transmission lines, or sign a long-term supply contract with a plant owner and buy or reserve enough transmission service to ensure physical delivery. Congestion? Not a factor, except for the occasional line outage or blackout. The power flows, or it doesn’t.

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