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Enron Mail |
RTO Week
Day 2 -- October 16, 2001 Congestion Management and Transmission Rights The morning panel discussed congestion management. The panelists were: Na= ncy Brockway, Commissioner New Hampshire PSC; Reem Fahey, Edison Mission; C= arol Guthrie, Chevron/Texaco; Shmuel Oren, University of California - Berkl= ey and advises Texas PUC; Andy Ott, PJM; Michael Schnitzer, NorthBridge Gro= up. General Observations The Commissioners were again all present (Wood left mid-morning to give tes= timony on Capitol Hill). Today, however, FERC Staff was much more active i= n the discussion and the commissioners asked very few questions. The topic= s are so interrelated that many of the same issues already discussed are be= ing rehashed again. This will probably continue for the rest of the week. = What I have found most encouraging so far has been the widespread support = for some of the basic concepts, most notably the need for a real time energ= y market based using LMP. Very few panelists have opposed this; at most, a= couple of panelists have argued that the real time market should not be st= andardized -- basically conceding that PJM's system is not going to change = in the Northeast but urging that it not be mandated everywhere else. =20 Opening Statements Nancy Brockway: focus on two topics: 1) flowgate vs. LMP; and 2) relation= ship between congestion management (CM) and resource planning. She support= s LMP and standard market design in New England. Flowgate rights are cumbe= rsome, create unnecessary uplift costs - freezing power distribution factor= s is bad and could result in some free rides. She is a Hogan follower, and= Hogan says flowgates can be done but are too difficult. With regard to th= e relationship between CM and resource planning, transmission is a monopoly= , and the CM principle is that entrepreneurs make a decision - decide where= to site generation or transmission and take a risk. FERC should not overr= ide that principle. Proposals for transmission expansion can undercut cong= estion management. Reem Fahey: RTO needs to be the grid operator and the market operator. Ca= nnot use different bid stacks for balancing and congestion. CM should have= a bid-based structure with LMP. Design of CM should allow flexibility for= market participants to be in the spot and forward markets. Transmission r= ights - must be financial and not physical and must allow for financial hed= ging in real time. FERC should work towards the creation of trading hubs a= nd market participants should have rights from hub to hub and hub to load. = These rights should not interfere with real time dispatch of the system. Carol Guthrie: Her company has diverse interests in electricity market - o= ver 4,000 service locations, over 150 suppliers, more than 15 sites where t= hey have industrial generation serving own load (500 MW). =20 Shmuel Oren: Advocates minimal ISOs, direct assignment of congestion costs= in real time, flowgate rights proposal because it requires less centralize= d coordination and supports forward rights. Does not support "one size fit= s all." Need to understand gaming, modes of market failure. Problems in T= exas - people scheduled to cause congestion and then were paid to relieve t= he congestion. Need to charge for true congestion when it is predictable. Andy Ott: There is consensus in the industry that locational pricing works= . It's an operational tool used to manage reliability of the gird during c= onstraints. PJM has been using nodal pricing since 1998. Utilities have r= un their system on this approach for years - economic dispatch to meet dema= nd. Cannot do balancing and CM separately -- does not work. Transmission = rights must be financial. Spot market is physical. Financial model is the= hedging. You need this separation because it allows players to do bilater= als or buy or sell from the spot market. Also allows FTRs to be traded and= used to protect from congestion. =20 Michael Schnitzer: There is a preferred method of CM - the LMP based CM sy= stem with financial rights. DAM and RT bid-based security constrained loca= tional pricing markets. Bilateral transactions are allowed. Transmission = rights must be financial, not physical. Allows transmission users to hedge= congestion costs. Why is CM so important? Need to get the prices right t= o give the right signals to the market. Three goals: 1) get dispatch righ= t - show bilateral contracts and load the right price signal so they can re= spond accordingly; 2) price signals to generation for location purposes - c= larifies responsibility and risk allocations; 3) market signals for when to= expand the grid - LMP gives economic price signal and property right in FT= Rs. Locational Marginal Pricing The panelists all agreed that LMP in the real time market is necessary (Sch= muel Oren does not oppose it). Most of the panelists think this needs to b= e standardized across RTOs. Andy Ott says the seams will remain a problem = and a barrier to trading if the real time market is not standardized. Car= ol Guthrie does not favor standardization and urged FERC to not standardize= the PJM system throughout the eastern interconnect. She said FERC should = try a couple of different systems and see what works. =20 FTRs versus Flowgates The panelists agreed that transmission rights should be financial, not phys= ical. Schmuel conceded this point for the discussion but this may not be h= is preference - unclear. Most of the panelists, including the PSC commissi= oner, prefer FTRs rather than flowgates. Schmuel is a flowgate advocate. = After some discussion, the panelists agreed that FTRs and flowgates could w= ork together, provided that the definition of flowgate is understood. Andy= Ott said flowgates could work with FTRs if the purpose of having flowgates= is the same purpose of having hubs (liquidity, standard product), and if a= flowgate is defined as a grouping of point-to-point rights, then FTRs and = flowgates can coexist. If a flowgate is a hub for transmission rights, it'= s okay. However, if flowgate is defined as a physical boundary requiring s= cheduling, the two cannot coexist. Schmuel seemed to agree with this premi= se, although this is not his preference. He seems to prefer only flowgates= without FTRs. Brockway seems to prefer FTRs rather than flowgates for fe= ar that flowgates will result in excess socialization of costs. The panelists also agreed generally that revenues generated from FTRs or fl= owgates should be allocated to load, but the method of allocation was not a= greed upon. FERC staff asked the panelists to discuss commercially significant flowgate= s. Many of the panelists discussed the problem with deciding what constitu= tes a commercially significant flowgate, and what happens when circumstance= s change over time, resulting in different flowgates being commercially sig= nificant. Schmuel said you could use either a system that relies only on c= ommercially significant flowgates or one that uses all flowgates, but if pa= rticipants are willing to accept a system where they are not perfectly hedg= ed, use of commercially significant flowgates is acceptable. The panelists= agreed that these financial rights (either FTRs or flowgates) should be tr= adable in the secondary market. The panelists disagreed on whether FTRs or= flowgates are actually more tradable. Andy thinks FTRs are more tradable;= Schmuel thinks flowgates are more tradable. Options versus Obligations The panelists discussed the benefits of having FTRs be options but also dis= cussed the additional problems presented to the system operator if FTRs are= only options and the FTR holder is not required to flow or pay if it does = not flow. Andy Ott said options will most likely result in fewer FTRs bein= g allocated. Schnitzer says the issue must be resolved up front. =20 The afternoon panel was on Transmission Planning and Expansion. Steve Walt= on was a panelist and will be providing a summary of the discussion shortly= . =20 Let me know if you have any questions. Sarah
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