a comparable cost. But what, exactly, are those "different uses"? How should they be classified?
To answer these questions, let's first turn to the story of the two balloonists lost in the clouds. When they found a patch of blue sky they called down to Earth: "Where are we?" Up came the answer: "You're in a balloon."
Back in the gondola, the pilot remarked, "That fellow down below must be a lawyer." "Why?" asked his passenger.
"Because his answer was impeccably correct but utterly useless."
Owners vs. Renters
The FERC could have classified transmission uses by function. But it didn't do that. Instead, in its transmission access NOPR (see sidebar), the FERC employed a geographic or topological classification. It found that utilities use their transmission systems in two basic ways:
1) to provide point-to-point transmission service that supports coordination sales
2) to provide network transmission service that supports the economic dispatch of [utility] generation units and purchased power resources.
For you lawyers out there, yes, the FERC has correctly stated one of several possible classifications. The more important question, however, is whether this choice of how the uses are stated will help the FERC compare transmission uses between owners and renters, so as to mitigate the owners' market power.
And so the FERC's classification, while impeccably correct, would appear useless for comparing uses of the larger holding company systems, such as American Electric Power or Entergy. These systems employ their networks not only for central economic dispatch, but also for all or almost all of their purchases and sales of planned and unplanned surpluses of power to coordinate large-scale, base-load units between and among their operating companies.
Under the FERC's classification of uses, the holding company systems get the benefit of diversity in the use of purchased transmission for coordinated development. But third-party users must divide their transmission needs for coordinated development transactions in two parts, network and point-to-point. Further, they are met with serious restrictions at interfaces and with penalty rates for exceeding those restrictions. The imbalance affords transmission to the owning systems at a significantly lower cost for the function of coordinating development of base-load generation, probably the most important aspect of coordination for reducing cost. Further, these restrictions and penalty charges act as "impediments" to providing "coordinated development transmission service" to third-party transmission customers. The owners have no such impediments to their coordinated development.
Of course, access to units of 800 to 1,200 megawatts (MW) is not as necessary now as it once was. The FERC downplays the need for scale in the Giga-NOPR (see footnote 59, p. 35). Nevertheless, in a free competitive economy, one should have the opportunity to follow the dictates of one's own judgment.
One may ask, "Why can't third-party systems engage in coordinated development transactions with the same systems that the holding company does?" The answer is that holding company system agreements usually require their operating companies to give a preference to transactions with other operating companies in the same holding company. Indeed, these agreements may even require a participating company to obtain permission from all other operating companies before dealing with a third party on a coordinated development. In any event, a network tariff can prohibit system transmission use for third-party sales.
In many cases, geographical or topological uses by the transmission owner and third-party transmission customers will be the same as their functional use. But where the two categories of uses are not equivalent, the FERC's three excellent goals of comparable use, comparable cost, and comparable lack of impediments will not be achieved. Comparing uses in categories of network and point-to-point operation will not allow fair comparisons of comparability on the basis of economics. For mitigating economic power, one must turn to the functional categories of uses, those that
drive the economics of a power system. t
Wallace Edward Brand practices law at his own firm in Washington, DC, where he represents small electric systems. Previously, he worked as a trial attorney at the Federal Power Commission and in the Justice Department's antitrust division.
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