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States of Denial

Three challenges to federal authority from those unhappy with the status quo.

Fortnightly Magazine - January 2007

Daniel A. King urged FERC in its OATT policy case to “resist the calls from those who would set aside transmission capacity outside of the normal process for special customers,” such as wind, renewables, or clean coal.

As King wrote, “such proposals are contrary to the basic tenets of non-discriminatory open access.” He conceded that such projects might be “politically attractive,” but warned that they could “discourage the development of needed capacity.” (See Sempra Global, initial comments, FERC Docket Nos. RM05-25, RM05-17, p. 10, filed Aug. 7, 2006.)

Connecticut: A Classic Whipsaw

When is a “price signal” really just a market failure?

That’s the implicit question posed by Connecticut Attorney General Richard Blumenthal, who charges that retail electric rates in his state and throughout New England have “skyrocketed” to unreasonable heights during the last three years, due primarily to the interplay of RTO market design and severe levels of in-state transmission congestion.

“Connecticut’s 2006 rates,” he wrote in November, “are more than 70 percent higher than they were in 2003, and the state is poised for substantial additional rate hikes this coming January.”

Blumenthal adds that data from the U.S. Energy Information Agency shows that retail electric rates in the four southern New England states are the highest overall in the continental United States, and Vermont and Maine, to the North, rank 8 and 9, respectively. The reason, he says, stems from the “hybrid” nature of the regional market design in place at ISO New England and other RTOs across the country. Such markets, he argues, have created a classic whipsaw that guarantees that the price of wholesale power will always be more than is just and reasonable—especially in areas of severe grid congestion.

Blumenthal filed his charges at FERC back in September 2005, but the commission turned him down this past October in an order denying the complaint. (See, Docket No. EL05-150, Oct. 11, 2006, 117 FERC ¶61,038.) Nevertheless, the case raises questions that do not go away so easily.

Consider that FERC-approved tariffs in ISO New England (and most other RTOs) set the market price for competitive power at the various locational nodes at the highest auction-clearing price, meaning that relatively low-cost resources such as nuclear- and coal-fired plants can collect what the market will bear. At the same time, however, the RTO market regime allows certain other plants to sign contracts to guarantee them a sort of modified cost-of-service rate if those units are deemed crucial enough in supporting grid function. Such plants may be uniquely situated to ensure voltage stability, supply reactive power, or to serve load pockets with restricted access to the mainline grid, and thus may qualify as RMR units—denoting the phrase, “reliability must run.” Moreover, in areas of extreme transmission congestion, it may be possible for a large share of the generating sector to qualify as RMR production.

And that’s the case in Connecticut, says Blumenthal. He notes that grid congestion is now so severe in Connecticut that ISO New England has declared that all generation in the state is needed for reliability and therefore