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An Inconvenient Fact

Why the standard market design refuses to die.

Fortnightly Magazine - December 2006

anecdote from WECC as an indictment of FERC’s OATT revise: “In other words, reliability entities in the West … are telling the commission that Order 888’s somewhat arbitrary mechanisms for penalizing imbalances may be posing a threat to grid reliability.” (Chandley/Hogan, reply comments, Sept. 20, 2006, p. 13.)

A second example comes from PJM itself, where the RTO suggests that pricing inconsistencies between its open-market dispatch versus closed dispatch procedures in adjacent areas led to higher unscheduled power flows through its system during the 13 months ending April 30, 2006. PJM explains that this “free-rider” problem has disrupted RTO operations and contributed to the “revenue adequacy issues” for financial transmission rights (FTRs) that PJM has experienced over the last year. (PJM, initial comments, pp. 33-35.)

PJM argues that FERC’s plan for separate-but-equal open and closed dispatch regimes in adjacent regions will prove untenable. It urges FERC to mandate reciprocal and open redispatch protocols for RTO-bordering and vertically integrated utilities, and even to authorize RTOs to include provisions in their tariffs to charge non-RTO members for making use of the RTO’s open dispatch markets.

PJM’s reference to FTR revenue adequacy recalls the situation in the recent Chambersburg complaint (see Commission Watch, “ Bad Day at Black Oak ,” Oct. 2006) , which opponents have cited widely as reason to reject the open dispatch concept.

PJM’s free-rider example shows how the failure to assign proper prices to grid services can spark arbitrage, undermining markets even in areas favorable to trading.

Redispatch and Native Load

Of course, FERC’s reform plan in actuality seeks to have it both ways. It disclaims any interest in RTO market regimes, yet proposes a very slimmed-down “lite” version: a new “conditional firm” PTP service, plus a modest redispatch option that goes beyond the scope of redispatch now required under Order 888.

The conditional firm idea has won the more favorable review. FERC sees constraints occurring during a few hours in the year and asks why that should give cause to transmission providers to deny a service request in its entirety. So it proposes a CF service that would qualify as firm in all but those few delineated hours.

On the other hand, open dispatch opponents also have widely panned FERC’s more limited redispatch proposal, whereby denied grid customers could ask the transmission providers to consider redeploying power plants under the provider’s control as a potentially cheaper alternative to a grid expansion. But here is the irony: The provider must make the decision before conducting the facilities study that reveals the cost of the redispatch.

Some opponents reject redispatch as an unlawful extension of FERC jurisdiction over the generating sector. PJM counters, however, that OATT redispatch should be seen essentially as another form of transmission service, in the same way that FERC justifies its authority over generator interconnections.

Quite naturally, EPSA joins PJM in arguing that FERC has authority to control dispatch. EPSA predicts that this question must be decided eventually, if not immediately in the OATT NOPR case. For example, it references the complaint filed by the Arkansas Public Service