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Solve the Seams

The big challenge facing the Northeast energy markets.

Fortnightly Magazine - October 2007

The Northeast energy markets are working hard to establish new levels of regional coordination and cooperation. The region’s concerted effort is essential to resolving some of the industry’s toughest issues since the individual markets evolved. These issues include the elimination, reduction, or bridging of seams issues that prevent the economic transfer of capacity and energy between neighboring wholesale electricity markets, or control areas, as a result of incompatible market rules or designs.

Seams issues remain one of the greatest barriers to energy trading, market liquidity, resource optimization, inter-regional planning, and overall cost reduction. The Northeast is leading the charge to marginalize intra- and inter-regional seams issues. The Northeast is laying the groundwork for a future where regional goals—such as greenhouse-gas reduction, the economic transfer of capacity and energy, and the benefits of renewable energy—take precedence over individual market designs.

The Northeast region includes the New York ISO, ISO New England, Ontario, Québec, and the Canadian Maritime provinces, which together constitute all of the Northeast Power Coordinating Council (NPCC), as well as the “classic” portion of PJM, which is contained in the Reliability First Corp. (RFC) coordinating council. 1,2

As Table 1 shows, this region overall has adequate generating capacity. However, what the table does not show is that the majority of the least-cost capacity is located in the north, west, and south of this region; while the eastern-central portion, with its heavily populated metropolitan centers, increasingly needs to access this power. And therein lay the keys to the region’s future—improved transmission access, reduction or elimination of seams issues, better utilization of existing resources, and price or regulatory signals that stimulate infrastructure investment where it is needed most.

Existing Resource Base

In the Northeast markets, the generation-resource mix varies significantly by region. In the PJM part of the RFC region, coal, oil, natural gas, and nuclear make up 95 percent of total capacity, while hydro makes up only 4 percent. In contrast, the NPCC region is more heavily weighted with hydro assets. In NPCC, the mix is 37 percent hydro, 25 percent nuclear, 18 percent natural gas, and 13 percent coal. Most of the NPCC hydro assets are located in Canada, while most of the NPCC natural-gas assets are in the United States. One of the major trends of the last decade was the significant increase in the percentage of natural-gas-fired generation in both NPCC and RFC.

Figure 2 provides a more detailed view of the Northeast resource mix and provides some insight into the region’s market dynamics. In RFC, purchased-power transactions generally flow from west to east and south to north. This is because the majority of the less expensive coal generation is located in the west and south (see PJM-West, APS, and VP), while the more expensive natural gas-fired generation is located in the east and north (see PJM-East). Additionally, the generation owners in western and southern areas of PJM also have greater reserve margins

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