(November 2008)Economic uncertainties are raising doubts over utility returns. Will regulators feel the need to consider broader economic effects when engaging in ratemaking? While...
Calling EPACT's Bluff
How Congress opened another can of worms with its call for regional joint boards to study power-plant dispatch.
to FERC Commissioner Suedeen Kelly, FERC Docket AD05-13, copy filed Feb. 16, 2006.)
The lead “hijacker,” if you accept Brownell’s description of the danger posed by a broad reading of EPACT, appears to be Howard Spinner, director of the Virginia commission’s Division of Economics and Finance. In his role as a member of the PJM/MISO regional joint board, he has sought answers from PJM as to the relationship between market bids and total cost for those resources that have cleared the RTO’s market-based dispatch. Further, he has sought to determine whether the RTO’s single uniform clearing price has forced consumers to pay too much for power (by allowing low-cost, coal-fired generation to sell at the same price as gas-fired turbine output on the margin) and whether a pay-as-bid regime, or perhaps even a cost-based dispatch, might prove more beneficial to ratepayers.
On one hand, Spinner has disclaimed any attempt to put the toothpaste back in the tube, at least in his testimony from the second PJM/MISO regional board hearing held this past winter:
“Again, I’m not a lawyer, but reading the law, this is about affordability and lowest cost. …
“If you determine that the bid-based system was not performing as well as it could, it doesn’t mean that you necessarily scrap that. …
“To me, looking at bid versus cost is really about how the market is working. It’s not to argue for … big system, or it’s not to argue for a return to cost-based regulation.”
Nevertheless, Spinner conceded that you’ve got to rock the boat a little:
“Unfortunately (because I know a lot of these people), this … could lead to a hell of a lot of debate. I’m sorry for that, but that’s what my interest is in this: seeing how well the markets are working for the purpose of trying to improve them if they’re not working as well as they could be.”
Of course, if you are to take Congress at its word, and use the new EPACT section to conduct a serious cost-benefit analysis of PJM/MISO dispatch practice, then the question arises—as that regional board itself has asked—costs and benefits as compared to what?
As that board has noted, all entities practice some form of economic dispatch. Thus, it would be meaningless, the board said, to compare an RTO-managed dispatch, with a bid-based LMP derived from a single clearing price, against a result with no economic dispatch at all.
Not satisfied, apparently, with the scope of the process, Spinner filed concurring comments alongside the PJM/MISO board report, which elicited a robust rebuttal, by the way, from Jeff Davis, Missouri commission chairman, offering a convincing argument on why any apparent discrepancy between an RTO and cost-of-service dispatch is due to inherent and inescapable market imperfections, such as transmission congestion, and lack of complete market information (as the lack of storage capability forces electricity traders into shorter-term decision making).
As for the board itself, it has recommended only that any benchmark for testing the magnitude of true RTO benefits must be “carefully and explicitly specified.”