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Solve the Seams

The big challenge facing the Northeast energy markets.

Fortnightly Magazine - October 2007

process, the OPA has addressed each aspect of the future market through various discussion papers posted on its Web site and has integrated the various market elements into a draft document which will eventually become the IPSP.

Transmission Constraints

Transmission constraints are indeed a problem in the Northeast region, particularly in eastern RFC and southern NPCC. This situation exists for several reasons:

1. The transmission systems in this region generally have not kept pace with the tremendous growth in demand.

2. The systems were not designed to handle the significant power flows that have resulted from wholesale competition.

3. Siting for new and upgraded transmission facilities within these highly congested areas is a difficult and long process.

4. Until very recently, investors have not had adequate incentive to invest in transmission development. 3 It is not surprising, therefore, that the Department of Energy recently has identified this area as a potential candidate for designation as a national transmission corridor.

The Energy Policy Act of 2005 authorized the Department of Energy (DOE) to designate “national interest electric transmission corridors” where there is major transmission congestion. On Aug. 8, 2006, the DOE released its first National Electric Transmission Congestion Study. This study identified two critical congestion areas that the DOE believes may be appropriate for designation as national corridors. One of these areas was the Atlantic coastal area from New York south through Northern Virginia; the other area was Southern California. 4 The DOE currently is assessing commentary from stakeholders in these areas to determine how best to alleviate the congestion problems and whether or not it is in the public interest to designate these areas as national corridors. 5

Applicants who want to build transmission within these corridors now may seek construction permits directly from the Federal Energy Regulatory Commission (FERC), assuming the relevant state regulators are unable, or unwilling, to grant such permits. For generators in transmission-constrained areas, FERC’s new supplemental siting authority could, in time, ease the “path to market” and increase both profitability and overall value of select generation assets.

Transmission constraints are the reason behind the use of locational marginal pricing (LMP), which is used in the RFC and the U.S. portion of the NPCC. LMP is discussed below. Transmission constraints can be ameliorated by adding or upgrading generation or transmission. We assume that the above actions will be undertaken on an economic basis over the forecast period; however, in our price forecasts we rely almost solely on generation additions that are located to serve load inside any congested market zone. We also consider and apply the relevant transmission rates and line losses for through-and-out reservation service on interconnecting lines. However, if the reader intends to perform short-term or location-specific analysis, we recommend that transmission constraints be considered in more detail because they can affect short-run plant profitability.

FERC has proposed a gradual migration to locational marginal pricing (LMP). LMP markets already are in place in New York, PJM, New England, and most recently in the Midwest ISO (April 1, 2005) and are under development in California, Electric Reliability