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The Nation's Grid Chiefs: On The Future of Markets

Exclusive interviews with the CEOs of five regional transmission systems.

Fortnightly Magazine - October 2006

the regulators along those lines.

We think that for the short term, the energy-only market approach is the right approach. We also think theoretically for the longer term it’s correct. However, reality says that probably the states need to get involved.

Fortnightly: You may find your states coming back and saying, “We want a forward auction like New England.” That would send you back to the drawing board?

Edwards: I think that whatever is best for our footprint, we can accommodate. If regulators want some kind of forward capacity market and we buy into that, it’s just a matter of what’s the best way to develop that. We want to do what’s best for our footprint. To us right now, that means energy-only, with the states having the authority to determine the appropriate level of long-term adequacy.

Fortnightly: Have you documented for OMS how high the energy price would have to rise in order to make an energy-only market work?

Edwards: I am not sure that we have said it has to be a minimum of $3,000/MWh, for 100 hours a year. We have not gotten that specific.

[Some additional comments follow from John R. Bear, senior vice president and COO for MISO]

John R. Bear: Specific prices are difficult to discuss because they are going to be dependent on fuel prices, which are pretty volatile right now. The key thing that Graham has noted is that the states have the authority to establish the appropriate level of long-term planning reserves. What we want them to do is establish that; then we’ll create the market from an energy-only standpoint—whether day-ahead, real-time, or forward, as Graham referred to—to allow that capacity to change hands efficiently. The critical first step is for the states to set that level.

Edwards: The main thing is to have sufficient steel in the ground. The commissions, of course, are going to drive that. We just need to make sure that we don’t get out in front of them.

Fortnightly: How is congestion going? Any big surprises, now that your markets have been up for a while?

Edwards: Number one, we think that the security-constrained economic dispatch, the five-minute dispatch that we use to solve congestion problems, works better than the old TLR process (Transmission Loading Relief). And let me tell you why I say that.

The Independent Market Monitor, Dr. David Patton, reviewed the historical market and the first nine months of the operation of the new market. He gave us a pretty high grade. He said the markets were working; that there was price transparency in the market, which is one of the main things we were trying to accomplish.

In that evaluation process he compared the first nine months of market operation to the same nine-month period of 2004, when we were using TLRs versus unit dispatch to solve congestion. He saw that about 85 percent less energy was displaced though the unit dispatch commitment process versus the previous TLR process. In other words, we had to interrupt fewer flows on the line to solve congestion