[BETA] Fortnightly

Tales of bad faith, cold feet and price manipulation.

Lollipops"/fn1/ and "loopholes." "Islands" and "peninsulas." Utilities have invented a colorful new lexicon to explain what's happening at power pools and regional transmission groups. Yet the basic issue remains familiar: How to gain a competitive advantage.

Locational marginal pricing, even if "complex," is well worth the benefits.

In two recent issues, PUBLIC UTILITIES FORTNIGHTLY featured editorials %n1%n on restructuring of the PJM Pool. Those two articles described proposals by the so-called supporting companies, %n2%n seven members of the Pennsylvania-New Jersey-Maryland Interconnection, to use a "locational marginal pricing" model for congestion pricing for electric transmission and to continue PJM as a "tight" power pool.

The PJM Interconnection is what they call a "tight" power pool. As the Federal Energy Regulatory Commission has explained, tight power pools "extensively coordinate" their planning and operations, with central dispatch of generating plants. This coordination builds reliability--one of the long-term benefits, says the FERC, of a tight power pool.

Coordination also builds market power, however. And, as we all know from FERC Order 888, market power in transmission stands as "the single greatest impediment" to electricity competition.

More than a decade ago, working at the energy laboratory at the Massachusetts Institute of Technology, the late Fred Schweppe devised a novel scheme for pricing electric transmission. His solution? Do nothing. Simply ignore transmission.