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The Geopolitics of the Grid

Is it really so important to preserve regional differences?

Fortnightly Magazine - September 2006

form for all areas,” was the familiar view. Then in what almost suggests that the West will always have a provincial, balkanized grid, the Westerner said the focus of changes that might be made to the current SCED practices, should be at the state or local level.

But the “regional differences” defense by some states seems without merit overall, and is becoming tired. Technologies are being developed that could compensate for the differences in distance and load, and could offer a more common experience across the nation.

One might ask: Are these arguments not just a smokescreen to hoard or protect state energy resources? These actions would be inconsistent with the American experience in other industries. If we had not reformed big oil, airlines, and banks in the United States, the American consumer today would pay widely different prices for gasoline and airline tickets, and would receive different interest rates on their deposits based on the state where they live.

Does this situation not describe today’s power industry? Why is the average retail price in Georgia still 6.58 cents/kWh, while the average retail price in nearby Florida is 8.16 cents, according to 2004 EIA data? In the West, Californians pay an exorbitant 11.45 cents/kWh on average while most of the West still pays between 5 cents/kWh and 6 cents/kWh on average? And in New York, the price is a sky high 12.55 cents/kWh.

This is not an argument for or against electric competition, an idea that has become so politicized in this nation that no meaningful discussion is possible. Rather, what reforms are available to better use (dispatch) the resources that we already have?

Asking the Right Questions

Harvard’s William Hogan and LECG’s John D. Chandley, in their analysis of FERC’s proposed reforms to the Open Access Transmission Tariff (OATT), argue that the commission is asking the wrong questions in its quest to preserve the “comparability” of transmission service provided to various industry sectors.

As they explain, FERC should put aside its worries about inconsistencies in the way that grid owners calculate ATC (available transmission capacity). Instead, they say FERC should concentrate on the protocols by which that ATC is awarded to resources — i.e., how the plants are dispatched across grid’s available capacity. In other words, it’s not how much grid you have, but whether you are using it wisely. (See, A Path to Preventing Undue Discrimination and Preference in Transmission Service, FERC, Docket No. RM05-25-000).

Hogan and Chandley write: “The emphasis on the past analyses has been on the defects of OATT contract path and ATC framework. Although the commission’s own analyses have recognized these defects, the commission has not been able to address these matters without entangling itself in a larger debate about electricity market design and electric restructuring. Given the impasse, it may be that the emphasis on ATC imposes too much on the commission if it is to find a path to preventing undue discrimination and preference in transmission services.”

Hogan and Chandley believe the only acceptable dispatch protocol is a region-wide, bid-based, least-cost and security-constrained