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An Inconvenient Fact

Why the standard market design refuses to die.

Fortnightly Magazine - December 2006

in seeking to standardize ATC calculations, it was bent on a fruitless quest:

“The inconvenient fact is that even if [we] were somehow able to define … [a] detailed set of rules for calculating ATC, the ATC calculations would still be largely irrelevant.” (See initial comments of John Chandley & William Hogan, filed August 2, 2006, p. 16.)

Moreover, however (and herein lies the real message), Chandley/Hogan implied that FERC’s intended focus on ATC also was dangerous, as it would only worsen the problem.

That’s because FERC’s ATC construct dares do nothing more than to ask, in essence, “how much capacity is left over” for merchants and third parties, after incumbent utilities, native load, and others holding prior, grandfathered rights are served first, regardless of the commercial value of their transactions.

Chandley/Hogan instead would put everyone in the pool as equals—before assigning any priority or privilege to assets linked to native loads or incumbent utilities (save, perhaps, for resources with unique physical and geographic properties essential for grid security). Starting from that point, the transmission provider then must make everyone happy. In other words, the job of transmission provider is not to ration the grid, but to find a way to honor every request. Open dispatch would achieve this end, in effect, by ensuring that transactions are properly valued, and then are properly balanced against the “price” of congestion and other real-time physical constraints. The provider deploys assets and re-arranges unit dispatch to respond to these prices and physical dictates—all for the greatest good for the greatest volume of transactions, as measured in terms of commercial value.

Thus, according to Chandley and Hogan, FERC had misconstrued the very nature of transmission service. The authors warned that FERC was leading the industry “inexorably down false paths towards dead-end solutions that cannot solve the problem.” (Chandley/Hogan, initial comments, p. 8.)

It then took only five days for another chip holder to come in and up the ante. On Aug. 7, the PJM Interconnection (a certified RTO) went one better and proposed to FERC an entirely new doctrine, grounded on the Chandley/Hogan ideas. PJM endorsed many of FERC’s incremental improvements to make the OATT more “transparent,” but advised that the real need was for a different sort of transparent tariff. This new tariff would have little to do with the wires, per se. Instead, PJM proposed a new tariff that would open the generation “bid stack” to regulatory scrutiny.

Of course, vertically integrated load-serving utilities that own both transmission and generation generally do not run actual auctions or take bids. Their stacks are more likely reflective of internal costs, and shielded from view. Thus, to be more precise, PJM’s proposal would simply require such utilities to make visible the full set of cost inputs, operational characteristics, and reliability constraints that come into play when they operate their transmission networks. These cost inputs might include gen plant parameters such as fuel costs, start-up and minimum-run costs, unit ramp times (up and down), emissions restrictions and such, plus how they interact with model assumptions about the workings