If transmission can substitute for gen-plant capacity, why not clear both products in the same auction?
Bruce W. Radford is editor in chief for Public Utilities Fortnightly.
Back in January 2004, when AEP subsidiary Appalachian Power (AP) asked Virginia utility regulators for permission to transfer grid functions to the PJM regional transmission organization (RTO), AP claimed that RTO membership would not force it to carry a larger reserve of generating capacity than already was required under rules imposed by ECAR, the East Central Area Reliability Council.
In fact, AP had promised Virginia that PJM membership might well produce a modest amount of net benefits.
For that assumption, the utility had relied on testimony from PJM itself that integration of AEP into the RTO likely would reduce AP’s reserve requirement, owing to overall expansion of the PJM footprint (with Commonwealth Edison also joining). Also, it would improve regional load diversity and spread risk over a larger collection of generating units.
Of course, ECAR’s required 12 percent reserve fell short of PJM’s 15 percent parallel standard for installed reserve margin (IRM). However, in response to interrogatories, PJM’s manager of capacity adequacy planning, Thomas Falin, had provided data showing that the time of AEP’s peak demand diverged somewhat from PJM’s system peak, creating a 2.5 percent diversity factor between the two peaks. This adjustment for diversity ([1.0 – 0.025] x 115–100) would allow AEP (and AP) to hold a smaller margin of 12.125 percent.