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Keep Your Eye on the South

The Southeast again is the battleground for fuels, technology, and market structure.

Fortnightly Magazine - July 2007

to advocate electricity market restructuring. 3 Regulators are concerned that restructuring wholesale-power markets might cause more cheap baseload power to flow north resulting in higher market prices in the South. State regulators also are concerned about losing their jurisdiction over electricity markets to federal regulators.

On the other hand, independent power producers (IPPs) in the Southeast continue to demand that vertically integrated utilities adopt measures to relieve congestion and provide improved transmission access for competitive suppliers. Aggressive merchant-capacity development in recent years has created a capacity glut in the Southeast. This overbuild, coupled with transmission limitations against reaching load centers, created a financial burden on merchant generators who became saddled with declining value and margins. With abundant, low-cost resources at their disposal, ample reserve margins, and no significant transmission bottlenecks, utilities in the Southeast have been reluctant to change the status quo and pursue an RTO/ISO structure, which comes with high administrative costs. Southeast utilities argue that losing access to systems paid for by their customers may jeopardize their efforts to meet native load in the most cost effective manner.

At the same time, repetitive merchant complaints combined with a commitment from the Federal Energy Regulatory Commission (FERC) to a competitive wholesale power market, have culminated in market-power proceedings against major Southeast utilities. Consequently, several utilities have been evaluating alternatives for complying with FERC’s open and fair transmission-access requirements without having to relinquish full control of their transmission assets. Entergy Corp. began receiving independent coordinator of transmission (ICT) services from the Southwest Power Pool (SPP) in 2006. Duke Energy and EON U.S. also adopted similar plans, with the Midwest Independent System Operator (MISO) and SPP, respectively, administering the non-discriminatory access to their system.

Entergy’s ICT plan represents the utility’s approach to providing competitive access to its grid without giving up full control of the transmission system. SPP began its oversight of Entergy’s system as its ICT in November 2006. The ICT and the Weekly Procurement Process (WPP) it administers are expected to benefit independent power producers by creating opportunities to compete for native load more effectively. The ICT plan widely is considered a step in the right direction in spite of skepticism regarding the ICT’s lack of independence from Entergy, and whether it can alleviate congestion and provide non-discriminatory access to all customers. Entergy’s plan has inspired other transmission-owning entities such as Duke Energy, EON (on behalf of its Kentucky LG&E and Kentucky Utilities subsidiaries), and MidAmerican to implement similar plans, all of which went into effect last year. Duke chose MISO as its ICT. EON and MidAmerican began taking services from SPP and TranServ, respectively.

Southern Co. recently settled with merchant generators and accepted FERC’s settlement terms to prevent barriers to market entry. At the same time, the nation’s largest public power company, the Tennessee Valley Authority (TVA), is developing a strategic plan to cope with changing market fundamentals by improving its operating efficiency and performance, and developing strong customer relationships. TVA is responding to competitive market forces as some of its distributors have been complaining about rising rates and have