Many utilities engage in hedging to protect customers from price spikes. But unless regulators are involved in crafting and monitoring these programs, they can turn into speculative ventures that...
The Nation's Grid Chiefs: On The Future of Markets
Exclusive interviews with the CEOs of five regional transmission systems.
Exclusive interviews with CEOs at five regional independent transmission system operators: Phil Harris, at PJM; Gordon van Welie, at ISO New England; Yakout Monsour, at the California ISO; Graham Edwards, at MISO; and Mark Lynch, at the New York ISO; • Grid Congestion • Price Volatility • ICAP/LICAP • Climate Change • Market Monitoring • Internal Governance • Geographic Expansion
Phillip G. Harris
President and CEO, PJM Interconnection LLCFortnightly: We read that congestion is growing. Is that true, and if so, is it a bad thing?
Harris: No. Congestion has nothing to do with markets. Congestion has always been there on the electrical system. What we’ve been able to do is provide transparency: information transparency and price transparency about congestion. Once you provide the information and the price transparency, then you are allowing market forces to relieve that, because now you can price it. If you can’t provide the pricing and the information transparency, then you’re leaving everything up to the black box of the utility—for that local utility to optimize their own resources—which may not be in the public interest.
Fortnightly: Is it enough to provide information for market participants to rationalize congestion in a monetary form?
Harris: The battle about markets is really a battle about information. In PJM, and in the other organized markets, we provide all of the information that a control area operator needs. And because it’s available publicly, anyone can see it. They can bid and participate. That’s why, at the recent [American Wind Energy Association] conference, they said it costs them 20 percent more money to try to operate in a non-market area, where you don’t have price information about the dispatch.
Just look at our data. Get on our Web site and let our staff walk you through it. FERC Commissioner [Jon] Wellinghoff was here. We sat down and he was just absolutely flabbergasted by all that system information: How much is flowing, where the flows are going, what’s happening to load, what the prices are, etc. It’s all updated every 5 minutes. It’s huge.
Fortnightly: Would you say that new grid projects—like the AEP Interstate Project and the Trans-Allegheny Project—have come in response to locational marginal price (LMP) differentials?
Harris: Absolutely. And the numbers are real and compelling. You’re looking at probably close to $10 billion dollars in projected construction under review. You’re looking at construction relieving about a billion dollars a year in congestion.
Fortnightly: We still read critiques of locational marginal pricing—that it creates a windfall for generators, because low-cost coal plants can bootstrap their prices up to gas-fired clearing price. Why the outcry?
Harris: When I go to the supermarket to buy an apple, I pay the going price, not the price based on the grower’s actual cost of capital, whether that apple is local or whether it’s imported from South America. That’s how every market works.
Now for those areas of the country that are still stuck in the old paradigm, it’s