(November 2008)Economic uncertainties are raising doubts over utility returns. Will regulators feel the need to consider broader economic effects when engaging in ratemaking? While...
States of Denial
Three challenges to federal authority from those unhappy with the status quo.
its plan to solicit bids from third-party energy suppliers, known as the Weekly Procurement Program, or WWP—up to $30 million a year for every single percentage-point decrease in market share for Entergy’s own gas- and oil-fired plants. The Arkansas complaint also claims that a plant retirement study completed by the Louisiana commission in March 2005 investigated the idea of retiring older Entergy units (with heat rates in excess of 10,000 BTU/kWh), in favor of newer merchant units with much lower rates (7,700 to 8,500 BTU/kWh).
Are the savings real? The Electric Power Supply Association (EPSA) certainly believes so. It has endorsed the Arkansas complaint, commenting that “there is something fundamentally wrong when consumers are denied the use of newer, cleaner, less expensive power plants … because the transmission system is being utilized by older, less efficient plants affiliated with transmission providers.” (EPSA, reply comments, FERC Docket Nos. RM05-25, RM05-17, p. 15, filed Sept. 20, 2006.)
Nevertheless, Entergy long has insisted that the cost efficiencies promised by merchant power can prove illusive, because contract offers from independent power producers (IPPs) typically do not afford the flexibility needed to run the grid. Consider its response to the Arkansas complaint:
“Although the studies simply assume that all IPPs can be dispatched at will, Entergy typically does not receive bids from all IPPs in its footprint. … Rather, merchants usually offer blocks of power or shaped products that do not provide the type of dispatchable load-following generation that Entergy’s oil and gas units provide. The most ‘flexible’ products offered by merchants generally include relatively high minimum volumes (that is, a high minimum take relative to a unit’s maximum output) and limited variability above that level, with a minimum of a 2-hour or more notice … [which] precludes the use of the merchant unit for intra-hour swing capability and AGC [Automatic Generator Control], for which Entergy has high needs. … None of these complexities are modeled in the studies, but they are real and they matter. Thus, accepting such offers could actually increase system costs, even if the heat rate of the merchant plant is lower than the heat rate of the plants that Entergy actually runs.” (Answer of Entergy Services Inc., FERC Docket No. EL06-76, filed Sept. 15, 2006.)
California: A Renewable-Friendly Grid
Regulators out West at both the California Independent System Operator (Cal-ISO) and the state PUC are searching for a way to coordinate the state’s aggressive promotion of renewable energy with the FERC’s rather conservative rules on funding and cost recovery for construction of new electric transmission lines.
The apparent goal is to convince federal regulators to create a new category of transmission line, for rate-making purposes. This new category would aid development of renewable energy sources, such as wind or solar farms, or perhaps even geothermal basins, where the resource typically is situated far from load. However, it remains unclear whether such a physical concept (a line dedicated to a particular type of resource) can mesh with the financial markets and the economic grid planning regimes now seen at regional transmission organizations and