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RTOs and the Public Interest

Defining the mission when the consumer plays second-fiddle to the needs of the market.

Fortnightly Magazine - September 2009

of the way PJM membership and voting rights were established years ago, approximately 60 percent of the voting interest is in the hands of entities that own no substantial investment in generation or transmission … Unless changed, this will only worsen as potentially hundreds of new small generators, retail customers and aggregators of retail customers [ARCs] become members.” (See, Comments of DP&L, pp. 13-14, filed June 26, 2009.)

The PSEG companies observe that municipal co-ops can participate in the transmission-owner (TO) sector by owning less than a mile of transmission, while a large industrial end user can jump ship and join the generator sector “on the basis of a single-on-site generator that sells a small amount of excess power into the grid.”

Constellation Energy explains that on critical matters, stakeholder voting at PJM often splits into two blocs (60-40), reflecting the RTO’s five-sector voting scheme (generators, other suppliers, transmission owners, electric distributors, end-use customers), subordinating generators and TOs to the veto power of the larger (but less-capitalized) three-sector bloc, but leaving neither bloc with enough sector-weighted votes to achieve the required two-thirds majority. The PJM Power Providers Group (P3) commented that the current sector-weighted voting produces “skewed” outcomes “that misinform the board, primarily due to the substantial influence of small coalitions of industrial end users, other suppliers, and municipal utilities.”

PJM’s Task Force 719 sought to break the impasse, but couldn’t reach consensus in time to include any concrete proposal in PJM’s April 29th tariff filing. Thus, PJM has kicked the problem over to its GAST project (Governance Special Assessment Team). One ideal would involve bicameral voting, as in the U.S. Congress, where members would cast votes once as sector members, and then again through an added parallel vote that would be weighted by asset ownership. A two-thirds supermajority still would be required to approve new tariffs.

This problem only will intensify as DR takes hold.

As DPL’s Randall Griffin adds, PJM’s proposal in its Order 719 compliance filing to lower the minimum threshold to 1 MW for DR bidding and market participation could make “tens of thousands of individual, non-aggregated entities eligible for RTO membership, thus blurring the line between wholesale and retail markets.

“What exists today,” Griffin writes, “is a structure where, when sector voting is invoked, Joe Trader and others like him who buy and sell financial transmission rights out of their home offices have an equal vote with the investor-owned utilities.”

Value and Scarcity Pricing

In terms of potential complexity, the most ambitious mandate of Order 719 instructs RTOs to modify rules governing price formation during periods of operating-reserve shortage. Thus, FERC wants to allow market-clearing prices during such shortage periods “to more accurately reflect the true value of energy.”

In Order 719, FERC suggested four alternative methods for RTOs to achieve scarcity pricing during a shortage emergency:

• Relax bid caps for gen suppliers and DR providers;
• Relax bid caps for DR bids only;
• Set an administrative demand curve for operating reserves, to allow prices to increase gradually with the extent of the shortage, in