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An Inconvenient Fact

Why the standard market design refuses to die.

Fortnightly Magazine - December 2006

Power, which employs a partial netting to avoid penalties, plus a multi-tiered series of deadbands and different penalty categories;

Hourly firm PTP service —FERC says it might be needed;

Regional transmission planning —FERC lays out eight principles to govern coordination and meetings, but doesn’t say what a “region” is, or tell planners how to recognize “significant and recurring congestion,” which is to be the focus of such efforts;

Service denials —FERC asks grid providers to give narrative explanations when they deny transmission to merchant generators;

Joint ownership —FERC asks whether it should create an “open season” for large regional backbone grid projects to facilitate joint ownership (on the wish list for public power);

Secondary resales of grid capacity —FERC would relax price caps, as was done with gas pipeline capacity;

Rollover rights —a guaranteed renewal only for those transmission contracts of five years or more, says FERC; and

Public power participation —FERC avoids any blanket mandate for non-jurisdictional utilities to file an OATT, but will review the idea case- by-case.

Space limitations prevent much further analysis of these or the many other OATT proposals, though each has provoked controversy, as seen by the sheer length of the FERC’s NOPR (536 pages), plus the thousands of pages of comments filed by some 150 industry stakeholders. (See, Docket Nos. RM05-25, RM05-17, May 19, 2006, 115 FERC ¶61,211. All comments cited in this column come from these dockets. See also, Commission Watch, “ Tariff Tinkering ,” Jan. 2006. That prior column reported on FERC’s initial inquiry on how it might revamp the OATT.)

By contrast, two other ideas from FERC warrant a closer look:

1. Measuring Grid Capacity. Standardizing the calculation of ATC (available transfer capability), to determine how much transmission capacity that transmission service providers have available, after satisfying all prior service commitments (including, in particular, network-transmission service promised in support of native load); and

2. Redispatch to Boost Capacity. Requiring transmission providers either: (a) to offer “conditional firm” service (instead of simply denying a service request) if firm PTP is available in all but a very few defined periods during the term; or (b) to consider redispatching resources to reconfigure grid flows, without first conducting a facilities study.

These twin ideas—ATC reform and redispatch—offer key clues in understanding the theory of open dispatch.

In Defiance of Law

This monster NOPR was pretty much the pet project of FERC boss Joseph Kelliher, and he has talked it up ever since he took the chairman’s seat. Yet he has cautioned also that the NOPR should only improve on Order 888 and the OATT framework—not create any “new market structures.” Industry observers took Kelliher at his word: that FERC would not rock the boat. Certainly, there was no inkling that FERC would revisit the SMD or RTO markets, be they “day 1” (real-time balancing) or “day 2” (day-ahead, bid-based energy price auctions).

But then came trouble. On Aug. 2, consultant John Chandley (LECG) and the more famous professor and consultant William Hogan (Harvard Univ.) filed comments advising FERC that