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PUR Guide 2012 Fully Updated Version

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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).

Deck: 

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

Demand Growth and the New Normal

It’s tempting to attribute the recent slowdown in electricity demand growth entirely to the Great Recession, but consumption growth rates have been declining for at least 50 years. The new normal rate of demand growth likely will be about half of its historic value, with demand rising by less than 1 percent per year. This market plateau calls for a new utility strategy.

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Figure 1 - Electricity Sales Growth (Two-Decade Distributions)
Figure 2 - Cumulative Demand Growth (2010-2035)
Figure 3 - Arc of Price Responsiveness
Figure 4 - Impact of Codes and Standards on Electricity Consumption
Figure 5 - Efficiency Gains of ENERGY STAR Qualified Models
Figure 6 - ERCOT Loads in Texas (3/9/11 and 8/3/11)
Author Bio: 

Ahmad Faruqui is a principal at The Brattle Group, and Eric Shultz is a research analyst. This article was revised from Faruqui’s presentation at the Goldman Sachs Power & Utility Conference on Aug. 14, 2012. The authors acknowledge research assistance by Jennifer Palmer.

Deck: 

Five forces are putting the squeeze on electricity consumption.

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.

Deck: 

A candid commentary on current topics in electric restructuring.

Federal Feud

When Revolutionary War veteran Daniel Shays led an attack on the federal Springfield Armory in January 1787—the spark that ignited the federalist movement—he scarcely could’ve guessed that now, 225 years later, his spiritual descendants would still be fighting that very same battle.

Author Bio: 

Bruce W. Radford (radford@pur.com) is Fortnightly’s publisher, and Michael T. Burr (burr@pur.com) is the editor-in-chief.

Deck: 

The jurisdictional battle rages on, with FERC and EPA squaring off against the states.

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
Sidebar Body: 

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.

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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.
Category: 
Commission Watch
Author Bio: 

 

Bruce W. Radford is publisher of Public Utilities Fortnightly.

Deck: 

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

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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Category: 
Commission Watch
Author Bio: 

Bruce W. Radford is publisher of Public Utilities Fortnightly.

Deck: 

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

Rate Design by Objective

Changes in regulatory requirements, market structures, and operational technologies have introduced complexities that traditional ratemaking approaches can’t address. Poorly designed rates lead to cross-subsidies, inequitable outcomes, and perverse incentives. An objective-based approach can better communicate costs to customers in a way that better serves operations and policy goals.

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Author Bio: 

Philip Q Hanser is a principal with The Brattle Group. He acknowledges the contributions of Brattle colleagues Ryan Hledik and Ahmad Faruqui, as well as Ken Costello of the National Regulatory Research Institute. He also acknowledges editorial assistance from Heidi Bishop and Shannon Wentworth at Brattle. The opinions expressed in this article are Hanser’s and don’t represent those of The Brattle Group or its clients.

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A purposeful approach to setting energy prices.

The CAPX2020 Model - Part I

Great River Energy’s Will Kaul discusses collaborative development
One of the most ambitious transmission projects in America today is CAPX2020, a series of lines in Minnesota and surrounding states. In this first of two exclusive interviews, Fortnightly's Spark talks with Will Kaul, Great River Energy’s v.p. of transmission, about how the project managed to succeed where others have failed.

Frequency Regulation

Not Just for Reliability Anymore
In a recent order, the Federal Energy Regulatory Commission (FERC) said that by paying the wrong price for the ancillary service known as frequency “regulation,” system operators have encouraged too many gas-fired turbines and other conventional fossil power plants to supply regulation service.

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