Chris King and Dan Delurey provide additional analysis for their recent paper, “Energy Efficiency and Demand Response: Twins, Siblings, or Cousins?” Fortnightly, March 2005.
Letters to the Editor
be subject to no discipline whatsoever. Although this is a recipe for market power abuse, quarterly reports and retention of data for commission audit provide the only monitoring envisioned by the TDAs’ proposal; no constraint-specific screening, mitigation, or monitoring is proposed.
In short, the redispatch markets proposed by the TDAs certainly are not assured to produce anything like the “actual cost” of redispatch, defeating this key prerequisite for effective redispatch service, and undermining its claimed societal benefits. As in the theory underlying the single market clearing price markets used by Day 2 RTO markets, such benefits depend on the assumption that bidding will reflect true opportunity cost—usually short-run marginal costs. There is little reason to hope that such benefits will be produced by redispatch markets operated by and participated in by vertically integrated transmission providers. The Day 2 RTO markets on which the “open” and “transparent” dispatch proposals are modeled (but whose benefits for consumers remain controversial) are at least operated by independent entities, with some (although not necessarily adequate) market-power mitigation and monitoring. By including none of those protections, the TDAs’ proposal all but invites mischief.
Of course, ongoing constraint-by-constraint market power examination, accompanied by mitigation and monitoring administered by an independent market monitor, could be layered on top of the TDA proposal, as could independent operation of the redispatch markets. But then we’re looking at something more like mini-RTOs than the “great taste, less filling” approach advertised by the TDAs.
Alternatively, all redispatch bids could be restricted to cost. But even that approach would bulk up the TDAs’ proposal with requirements for extensive and intrusive auditing. Particularly given the transmission provider’s ability to affect constraints through its dispatch choices, the customer, and FERC, will need the ability to verify the cause as well as the cost of redispatch.
Inconvenient Fact #3: Enhancing Profits From Constraints Won’t Get Transmission Built. TDAs’ statements that the proposal will reveal the value of upgrades and thus encourage construction echo claims that LMP would encourage expansion. But allowing transmission providers to collect real-time redispatch charges, thus creating a new profit center, will hardly induce them to eliminate the constraint and reduce their profits. Experience in RTO markets attests to the failure of LMP signals to create the robust grid Congress has directed FERC to achieve, as the DOE’s National Electric Transmission Congestion Study confirms.
FERC’s OATT reform initiative is on the right track with its focus on regional joint planning. To produce long-needed grid expansion, interactive and proactive regional joint planning should be reinforced by open seasons for joint ownership of major upgrades, elimination of obstacles to crediting of customer-owned transmission facilities, and measures to hold transmission providers accountable for failing to construct and maintain a grid adequate to support the competitive market and meet customer needs. Broadly spreading the costs of broadly beneficial upgrades also should be included on FERC’s agenda. But a proposal that rewards transmission providers that maintain a weak grid with lucrative redispatch revenues (on top of full transmission rates, as proposed by the TDAs) would be a complex and distracting