5.4. ERMUSR 03-20-2007 - Laserfiche WebLink

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NY ISO: Operates only in New York, but is fully FERGjurisdictional. New York City is a very u ansmission-constrai~~ed area within the N'Y ISO, which requires substantial mitigation of the NY ISO power markets. ~t PJM: Operates in all or parts of Delaware, Illinois, Kentucky, Maryland, Michigan, New Jersey, North Carolina, Ohio, Pennsylvania, Tennessee, Virginia, West Virginia and the District of ® Columbia. PJM has a very large footprint, but faces substantial transmission constraints between its eastern and western regions. American Electric Power and Allegheny Power have both proposed to build substantial high voltage transmission projects from Western to Eastern PJM that they assert will help to ease transmission congestion in tY~e region. SPP: Operates in all or parts of Arkansas, Kansas, Louisiana, Mississippi, I~~lissouri, New Alexico, Oklahoma and Texas. SPP has approached RTO formation and market development on a slower and more conservative track than many other RTOs. It does not operate LMP-based day-ahead and real-tune markets, but implemented areal-time energy r1 imbalance market in February 2007. I~ ' ' ' ' 1 1 APPA members in RTO regions report substantial problems that impair their ability to provide reasonably priced and reliable long-term service to their own electric consumers. Among the problems they have experienced: 1 Exposure to very high spot market energy prices that are in many hours based on bids ® submitted by natural-gas or oil fired generation, when many power sellers in fact use other, lower cost fuels. These high spot market prices in turn make power sellers unwilling to enter into longer-term bilateral contracts with buyers at prices that reflect their own production costs. 1 In RTO-administered electricity markets, prices are often volatile and unpredictable, even in regions with longstanding markets. Some market participants, especially LSEs that need electricity to serve end-use customers, have complained that volatile prices complicate their operational and financial planning. As rate caps end and retail prices are deregulated in many states, price volatility also exposes retail consumers to large financial burdens when prices increase or unexpectedly spike at high levels. 1 RTO market mitigation and monitoring regimes that may not prevent the exercise of generation market power by sellers and thus may fail to assure reasonable power prices. 1 Financial transmission rights (FTRs) that were designed to provide LSEs a hedge nn their exposure to congestion costs by giving them an offsetting stream of dollars during the hours when they must pay transmission congestion costs, but which often fail to provide the needed level of protection from congestion charges. Until recently, these rights have been exclusively short-term (no more than one year at a time). LSEs therefore had very little certainty about their ability to manage congestion costs from one year to the next. That uncertainty has biased LSE power supply planning toward correspondingly short-term power supply arrangements (which limit an LSE's exposure to congestion costs, but may force it to forgo the efficiencies and savings of longer-term arrangements). FERC has developed rules under which RTOs are required to provide long-term financial rights, and the subject RTOS are now filing their own long-term rights proposal. It remains to be seen whether these longer term rights will in fact give LSEs a stable and useful hedge over long time periods. 1 RTOs themselves do not have the ability to construct transmission facilities. Rather, they must rely on their member transmission owners. Many of these transmission owners have wWw.APPAnet.Org continued r 15