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Federal Energy Regulatory Commission

Order 745: Challenge to Plain Old Power Markets

The marginal external benefits provided by demand response prove more than sufficient to overcome concerns that paying LMP was too expensive.

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"The rule will allow wholesale markets to shape load curves to reduce the prices." – Charles Cicchetti
Author Bio: 

Dr. Charles Cicchetti is co-founder of Pacific Economics Group and formerly was the Miller Chair in Government, Business and the Economy at the University of Southern California. Previously, he served with Arthur Andersen Economic Consulting (managing director), Putnam, Hayes & Bartlett (co-chairman), National Economic Research Associates (NERA, as senior vice president), and the Wisconsin Public Service Commission (as chairman).

The Order will extend application of load-reducing technologies and marketing to a new class of services.

Don't Fear the FERC

Four steps to minimizing energy trading enforcement risk.
Market-manipulation violations can bring civil penalties and disgorgement losses. Energy traders can mitigate FERC enforcement risks with four straightforward (yet effective) steps.

Trading on a Knife Edge

A few months back, the Federal Energy Regulatory Commission directed Deutsche Bank Energy Trading LLC to show cause why it shouldn’t be assessed a civil penalty of $1.5 million and be made to return some $123,000 in allegedly unjust profits from power trading in markets run by the California ISO.

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In referring the Deutsche Bank matter to FERC for possible enforcement action, the California ISO’s department of market monitoring found that DBET traders had established a pattern of circular trading, by purchasing power exports out of CAISO at the Silver Peak intertie node, moving them across Sierra Pacific Power transmission to the Summit node (the E-Tag dotted line), and re-importing the same power back into CAISO, to be wheeled back to the starting point, in a manner “inconsistent with ISO and FERC ma
This figure depicts a hypothetical combination of supply and demand bids that could’ve created a situation of “degeneracy” at the Silver Peak intertie node, by which the market-efficient, security-constrained, least-cost dispatch solution under the California ISO market tariff could’ve indicated not a single, unique market-clearing locational marginal price (LMP), but a range of prices, falling between the lowest-priced supply bid (import bid) and the highest-priced demand bid (export bid)—any one of which
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Commission Watch
Author Bio: 

Bruce W. Radford is publisher of Public Utilities Fortnightly.

The Deutsche Bank case and the meaning of ‘price manipulation.’

Bill Hogan, Unbundled

A no-holds-barred interview with the electric industry’s chief architect of wholesale electric market design.

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People In Power
Author Bio: 

John A. Bewick is Fortnightly’s contributing editor and formerly was secretary for environmental affairs for the Commonwealth of Massachusetts. He holds advanced degrees in nuclear science and business management.

A candid commentary on current topics in electric restructuring.

Bridging the Seams

With no single entity in charge, transmission planning has plagued projects that span multiple regions. A new framework offers a solution.

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Figure 1 - Building Blocks for an Effective Interregional Planning and Cost Allocation Framework
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Sidebar Title: 
Cost Allocation Principles: An Expanded List
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FERC Order 1000 listed six principles for cost allocation for interregional transmission planning. FERC’s list, however, could be expanded as follows:

1) Commensurate with Benefits: The cost of interregional transmission projects should be allocated to regions such that they are at least roughly commensurate with total benefits identified for each of the regions based on the benefits and metrics specified. Neither region should be allocated a share of the cost of an interregional project in which it receives no benefit.

2) Transparency: The application of cost allocation methodologies and identification of benefits and beneficiaries must be transparent.

3) Different project types: Different cost allocation methods may be applied to different types (e.g., reliability, economic, or public policy requirements) or different portions of transmission facilities.

4) Quantify and Monetize: The identified benefits should be quantified and, if possible, monetized based on all internally used and additionally specified interregional benefit metrics. Non-monetized and non-quantified benefits should also be recognized in the assessment of the overall reasonableness of proposed interregional project cost allocations.

5) Benefits at Least Equal to Avoided Costs: The regions should agree that the monetized reliability, load serving, public policy, or other benefit of an interregional project will be at least equal to the avoided cost of achieving the same benefit solely through cost-effective local or regional transmission upgrades.

6) Hurdle Rate: If benefit-to-cost ratios are used to assess the desirability of an interregional project to a region or the regions as a group, the benefit-to-cost threshold must not exceed 1.25.

7) Regional Net Benefits: Benefits to each region need to be sufficiently large so that each region’s share of benefits exceeds its share of costs consistent with region-internal benefit-cost criteria.

8) Internal Cost Recovery: The costs allocated to each region must be recoverable through the existing internal—local and regional—cost allocation process of each region.–JP, JWC, and DH

Author Bio: 

Johannes Pfeifenberger and Judy Chang are principals of The Brattle Group. Delphine Hou is a former Brattle associate. This article is based on work undertaken for the Southwest Power Pool’s Regional State Committee and the associated report, Seams Cost Allocation: A Flexible Framework to Support Interregional Transmission Planning, April 2012, available at www.spp.org and www.brattle.com. The authors acknowledge sole responsibility for the content of this article.

Interregional planning under FERC Order 1000

A Pricey Peninsula

High prices have turned Michigan against regional planning -- a possible foretaste of what to expect under FERC Order 1000.

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Figure 1 - Proposed Multi Value Project Portfolio Overview
Figure 2 - MISO Prices May 29, 2012 – 1:05 P.M.
Figure 3 - May 29, 2012 – 2:05 P.M.
Figure 4 - May 29, 2012 – 3:35 P.M.
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Commission Watch
Author Bio: 

 

Bruce W. Radford is publisher of Public Utilities Fortnightly.

Michigan chafes over regional grid planning, providing a policy lesson for the feds.

A Virtuous Cycle

Data and experience show that serving customers well translates into better rate case outcomes. Conversely, poor performance starts a downward slide. J.D. Power and Associates research shows the correlation between customer service and financial returns.

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Figure 1 - Approved ROE And Customer Satisfaction
Figure 2 - Customer Expenses And Satisfaction
Figure 3 - Profitability and Customer Satisfaction
Figure 4 - Virtuous Cycle of Customer Satisfaction
Figure 5 - Rate Case Gap And Customer Satisfaction
Author Bio: 

Andrew Heath, Senior Director, Energy Practice, J.D. Power and Associates

How customer satisfaction drives returns on equity for regulated electric utilities.

RTO Tango

Utilities in the Midwest ISO want greater access to sell into PJM’s lucrative market. But that might require a virtual merger of the two RTOs — a move rejected seven years ago as too costly, and perhaps still impractical today.

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Commission Watch
Author Bio: 

Bruce W. Radford is publisher of Public Utilities Fortnightly.

PJM and MISO ran from the altar once before. Now there’s talk of a shotgun wedding.

Pre-Funding to Mitigate Rate Shock

As the industry resumes major capital-spending programs, utilities and their stakeholders are rightly concerned about the effects on prices. Traditional regulatory approaches expose utilities to risks and costs, and can bring rate shock when capital spending finally makes its way into customers’ bills. Pre-funding investments can provide a smoother on-ramp to bearing the costs of a 21st-Century utility system — but it also raises questions for utilities to address.

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Author Bio: 

Sherman Elliott is an independent consultant and formerly was a commissioner on the Illinois Commerce Commission. Ralph Zarumba is a director in Navigant’s energy practice.

Re-starting the Big Build calls for revisiting cost-recovery mechanisms.

Mitt Romney and You

The Republican nominee’s energy plan doesn’t say much about electricity or natural gas. But what it does say should sound familiar to anyone who’s followed energy policy for more than four years.

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Frontlines
Author Bio: 

Michael T. Burr is Fortnightly’s editor-in-chief. Email him at burr@pur.com

Bold plan for independence, or more partisan overreach?

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