TRANSMISSION PLANNING AND STANDARD MARKET DESIGN

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TRANSMISSION PLANNING ANDSTANDARD MARKET DESIGN
Federal Energy Regulatory Commission

• Dick ONeill and Mark Hegerle
• Federal Energy Regulatory Commission
• SSG-WI Planning Work Group Meeting
• Las Vegas, Nevada
• September 5, 2002

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ELEMENTS THAT AFFECT TRANSMISSION PLANNING

• Independent Transmission Provider
• New Transmission Tariff
• Organized Day-Ahead Real-Time Spot Markets
• Resource Adequacy
• Regional Planning Process

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INDEPENDENT TRANSMISSION PROVIDER

• Operates Transmission Facilities
• Administers Transmission Tariff and Spot Markets
• Performs Transmission Planning on a Regional Basis

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NEW TRANSMISSION TARIFF

• All customers subject to the same terms and
  conditions of transmission service Network
  Access Service
• Tradable Financial Rights (Congestion Revenue
  Rights) rather than physical reservations
• Congestion resolved by the market (through LMP)
  rather than by TLRs

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ORGANIZED SPOT MARKETS

• Implement LMP
• Congestion Revenue Rights
• Financial right that entitles holder to
  congestion revenue (enables customer to protect
  itself from congestion costs)
• Day Ahead Real Time
• Supplement Long-Term Bilateral Contracts

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RESOURCE ADEQUACY REQUIREMENT

• Forward-looking requirement (e.g., 3 years in
  advance) developed on a regional basis to
  encourage long-term contracts for supply
• Annual regional demand forecast by ITP
• Minimum 12 reserve margin region could decide
  on higher level
• Short LSE assessed penalties for spot market
  purchases during system shortage

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REGIONAL PLANNING PROCESS

• Start process within six months to facilitate
  development of infrastructure
• Ground-up process with regional coordination to
  address loop flow
• Four regions to start
• ITPs would act as clearinghouse and evaluate
  alternative proposals

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WHY REGIONAL?

• Increasingly regional nature of electricity trade
• Competitive markets require adequate
  infrastructure
• Planning on a single-system basis yields
  sub-optimal solutions
• doesnt consider entire markets
• misses parallel path flows
• less cost effective and may miss the best
  solution if it requires construction on a
  neighboring system

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MARKET-DRIVEN PROCESS

• LMP price signals indicate where investment is
  economically warranted
• Market participants are encouraged to propose
  expansion projects (transmission, generation, or
  demand-side)
• Planning entity coordinates projects checks for
  loop flow

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FOUR PLANNING REGIONS

• Build off of ongoing regional efforts
• Will facilitate development of a regional
  planning process in the near term
• WECC (CREPC/SSG-WI process)
• PJM-MISO-SPP
• NYISO-ISO New England
• SERC-FRCC

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IMPLEMENTATION

• Within 6 months, all tx providers must
  participate in a regional planning process
• Within 12 months, each of the four regions must
  have an initial regional tx plan
• Once SMD is in place, ITPs will play a greater
  role in planning

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NEAR-TERM TX PLANNING

• Prior to ITPs, the proposed rule relies on
  Multi-State Entities for planning,
  certification, and siting at a regional level
• Proposal complements recommendation of Task Force
  to National Governors Association

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TX PLANNING UNDER THE ITP

• ITP identifies all expansion needs, both
  reliability economic (reduce congestion)
• Market participants propose desired solutions
  (transmission, generation or demand-side)
• ITP acts as a clearinghouse for proposed
  solutions
• ITP is a backstop, i.e., if market doesnt
  propose necessary solution, ITP can issue RFPs or
  require TO(s) to upgrade transmission grid

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TX PLANNING UNDER THE ITP, cont.

• No solution has to be approved by the ITP
• only checks by ITP is to ensure proposal does
  not cause parallel path flow or make existing
  CRRs infeasible
• Builder gets Congestion Revenue Rights
• Projects not gaining ITP approval can be built
  subject to regulatory risk
• To be rolled-in, project must be determined by
  the ITP to be the optimal solution

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BENEFITS OF SMD PLANNING

• Regional approach provides optimal solution
• Price signals yield efficient investment
• Recognizes that market may not address all needs
• Includes all market participants and types of
  solutions equally
• Minimizes the need to rely on eminent domain and
  captive customers

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PRICING TRANSMISSION EXPANSION

• With ITP consider Participant Funding
• ITP determines beneficiaries
• Customer paying for facilities receives
  associated Congestion Revenue Rights
• Without ITP presumption will be to roll-in cost
  of expanding high voltage lines
• Will consider other pricing methodologies if
  States agree (and the proposal is consistent with
  the FPA)