Munis Declare Resource Adequacy Stymied by Short Transmission Rights

Short-term transmission rights are jeopardizing munis? ability to secure enough electricity supplies to meet long-term demand, according to public power agencies. The short-term nature of these rights to get electricity from where it?s created to where it?s consumed inhibits munis? ability to finance new plants and enter long-term procurement contracts. Public power agencies are pressing the Federal Energy Regulatory Commission to preserve and expand their access to long-term transmission rights. FERC, in turn, has promised to examine munis? dilemma?but not anytime soon. The California Independent System Operator (CAISO) says its market redesign will spur more available transmission to ensure transportation. Munis, however, counter that the market signals are weak at best. It is ?an impediment to investment with generators,? said James Pope, general manager of the Northern California Power Agency. Short-term transmission rights don?t ?match the resources,? added Joe Nipper, senior vice-president of the American Public Power Association. Most public agencies seek to buy power under arrangements that run 20 years or more to protect against price increases, while transmission rights last only for a year. Moody?s ratings service cited the lack of long-term transmission rights as a major risk factor in financing new generation projects, according to a recent white paper by Nipper?s association. As a solution, the association wants federal regulators to maintain existing long-term physical transmission rights already owned or held under contract by munis when it approves new market designs. It also wants the commission to ensure that public power agencies are fully hedged against any transmission congestion costs when they acquire short-term transmission rights. FERC agreed to reexamine the short-term nature of transmission rights under its current market policy, according to Nipper. However, the commission has not set a definitive schedule and was unavailable for comment. Meanwhile, the issue is on the front burner as CAISO redesigns the state?s electricity market (i>Circuit , Feb. 25, 2004). The gird operator plans to replace the short-term transmission rights with new congestion revenue rights (CRRs), said spokesperson Gregg Fishman. When utilities do not use all of their contracted transmission capacity, it creates a situation known as ?phantom congestion.? CAISO cannot always schedule transmission of needed power, even though lines have unused capacity. On the other hand, when short-term transmission rights holders do not need all their scheduled transmission capacity, CAISO is able to auction the unneeded portion of a line?s capacity to route power where it is needed. The rights holder receives a portion of the auction proceeds. Congestion charges?which amounted to some $400 million last year, according to Fishman?are supposed to send a market signal that the power industry should build additional transmission lines. While it has taken time, Fishman said that the market signal is beginning to work. However, many public power agencies believe that the signal is weak as demonstrated by Southern California, which this summer faces tight supplies and ongoing congestion. ?In the ideal world, it should send a market signal to build more generation and transmission at the right places,? said Bob Tang, assistant director of resource management for Azusa Light & Water. ?Unfortunately, the CAISO model is imperfect.? Azusa Light & Water, which lies east of Los Angeles along the foothills of the San Gabriel Mountains, depends upon transmitted rather than locally generated power. It has power-procurement contracts that will be expiring around the same time as its long-term grandfathered transmission rights end in 2010, Tang said. ?It?s making planning more difficult and uncertain,? according to Tang. ?We?re concerned about the price and supply.? Azusa would rather pay a little more for power to have price and supply certainty than face growing uncertainty, even under a revised market, Tang said. Under its plan to replace transmission rights with congestion rights, CAISO would offer CRRs for up to 37.5 percent of transmission capacity for a period of two years. That term could be extended, according to an analysis of its proposed market design prepared by an outside consultant and Harvard University. CAISO also would offer one-month CRRs to handle unexpected transmission outages. The bulk of CRRs would be for one-year terms. CRR holders would receive payments reflecting the cost of transmission congestion based on the difference in price between the node-to-node power source and sink, which, for instance, could be between a trading hub and a load-aggregation zone. In cases where ?the congestion price difference is in the opposite direction,? CRR holders would be obligated to make a payment, according to the analysis. CAISO plans to begin a stakeholder process this spring on developing CRR allocation rules, as well as transmission ownership rights, and to complete a study by summer. The CRRs would replace existing transmission rights in 2007, said Fishman. Muni sources said that until CAISO?s CRR proposal is further developed, it isn?t possible to tell whether it will be beneficial.

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Munis Declare Resource Adequacy Stymied by Short Transmission Rights

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