(October 2009) In his article “Paradox of Thrift, author James M. Seibert looks to be calculating his average service lives as the reciprocal of depreciation rates, whereas utility...
Letters to the Editor
the dispatch to balance the system and use redispatch to avoid violating transmission constraints (congestion). So the question FERC should be asking is: Why don’t the utilities allow third parties access to the same transmission service they use themselves?
Fifth, the arguments in opposition to remedying this fundamental discrimination do not withstand scrutiny. For example:
• It is not true, as APPA charged, that requiring non-RTO utilities to include third parties in security-constrained economic dispatch would impose all of the requirements of FERC’s “standard market design (SMD).” As proposed by FERC, the original SMD rule would have required all utilities to join RTOs, and required utilities to turn over control of their respective dispatches to the RTO. Neither redispatch proposal includes these requirements. To be sure, both proposals would require non-RTO utilities to accept bids for redispatch service and therefore to pay any generators for redispatching. And both would obviously need to charge grid users for the redispatch and balancing energy provided. Chandley/Hogan explain that locational marginal pricing (LMP) is the only consistent way to define these prices (a point on which the TDA proposal seems to disagree). But using LMP is not synonymous with SMD and mandatory RTO membership. The SMD also included meeting reliability constraints and economic dispatch, but these should not be rejected because they were part of SMD. FERC’s proposed SMD rule went much further, including requirements for resource adequacy, transmission planning, independent governance, and so on. In short, the key elements of FERC’s version of SMD that most troubled state regulators are not present in these modest proposals for redispatch.
• It is not true, as Progress Energy claims, that providing access to redispatch would require “confiscating the power supply resources of [the utilities] in order to serve loads that they have no obligation to serve.” The practice in RTOs is to allow any utility to reserve and use its own plants to serve its own loads. They are not required to go further. Only if a utility voluntarily chooses to offer additional power from its plants to the dispatch does the RTO dispatch those plants further to serve the RTO-wide loads. The same voluntary principle would apply in the Chandley/Hogan and TDA proposals. It’s conceptually little different from making “off-system sales,” as utilities do today.
• It is not true that native loads necessarily suffer as a result of including third parties in the redispatch. As your article correctly notes, offering redispatch to all parties does not take away the benefits native loads enjoy, save for their ability to exercise discrimination and exploit monopsony power. Instead, offering redispatch to all parties on a non-discriminatory basis expands the benefits enjoyed by native loads and extends them to all grid users. By expanding the reach of security-constrained economic dispatch and encouraging third parties to be part of (bid into) that dispatch, the dispatch can solve the balancing and congestion management problems that must be addressed for reliability, and do so at lower costs. This is not a zero-sum game; the redispatch proposal enlarges the benefits pie.