Publications by Year: 2006

The authors propose to eliminate the perverse incentives utilities have to resist energy-reduction options by guaranteeing approved fixed-cost recovery, while offering positive incentives, as well.

This paper decomposes the effects of the transition from an average cost distribution tariff to a cost causation based distribution tariff, in terms of time and location, that uses nodal prices to recover losses and an “extent-of-use” method to recover fixed network costs based on use at coincident peak. Our decomposition is designed so that the effects of using coincident peak and location for fixed network charges, as well as using marginal losses under constraints recovering the exact amount of losses, and recovering exactly the cost of network service in total can be isolated and analyzed separately. We apply our tariff transition and decomposition method to an example network with data from Uruguay to isolate the various effects with and without a distributed generation (DG) resource. We show moving to coincident peak charges and to fully charging for marginal losses while rebating the merchandising surplus through the fixed charges have the greatest effects on changes in distribution tariff charges. DG provides countervailing cost changes to distribution tariffs for loads through loss reductions and the implicit “creation” of new network capacity for which it is paid. The interaction of all these effects may lead to outcomes that are counter-intuitive, which further supports the need to decompose the tariff changes to fully understand the reasons for the direction and magnitude of changes in tariff charges in the transition to tariffs based more on cost causation.

Executive Summary

In the framework of the EC Regulation 1228/2003, the goal of this background paper is to provide a description of the different market based solutions available for transmission risk hedging in congestion management. This paper presents three different transmission risk hedging products that can be offered to the market in the field of cross-border trade and congestion management. Due to various facts several price zones exist within the overall European electricity market where the demand of each zone is met in real time by the production of the respective zone and a zone specific market price is found (e.g. on the respective Power Exchange). This raises the question of how a market player wishing to buy electricity in a certain price zone and to sell it in another one can hedge the risk of a price difference emerging between those zones. This paper describes the three main kinds of transmission risk hedging products identified by ETSO: • Physical Transmission Rights (PTRs); • Financial Transmission Rights (FTRs); • Financial Contracts for Differences (CfDs); The paper also provides a first evaluation of the different solutions adopting a markets’ perspective. From a practical perspective, the implementation of forward PTRs only requires a minimum of market infrastructure and contractual arrangements. This is probably the reason for this product to be widely and successfully implemented on most European interconnections. However, Market Splitting or Coupling or co-ordinated implicit auctions would be the main prerequisite towards the implementation of marketbased FTRs and CfDs in Europe. Vice versa, in case Implicit Auctions (Market Splitting or Coupling) are introduced FTRs form a reasonable complement to those schemes for transmission hedging.

Turner, Becky. Do Vertically Integrated Utilities Plan for a Competitive Energy Market? 21 September 2006. Presentation, 28 pages.

"Joskow, Paul. Incentive Regulation in Theory and Practice: Electricity Distribution and Transmission Networks. 21 January 2006. Paper, 63 pages."

U.S. Department of Energy. National Electric Transmission Congestion Study. August 2006.

Sotkiewicz, Paul. Nodal Pricing and MW-mile Methods for Distribution: Have We Uncovered Missing Markets or Elements for Wholesale Power Markets? 2 March 2006. Presentation, 25 pages.

Landgren, Dale. A Proactive View of Transmission Planning. 21 September 2006. Presentation, 13 pages.

Excerpt from the Executive Summary:

The National Rural Electric Cooperative Association (NRECA) commissioned Christensen Associates Energy Consulting, LLC (CA Energy Consulting) to objectively examine the performance of Regional Transmission Organizations (RTOs) and the markets they administer. This report is the first of a series of “RTO Report Cards” that will track the performance of major functional elements of selected RTOs over time. This initial Report Card focuses on the performance of the PJM Interconnection LLC (PJM) RTO and the Midwest Independent Transmission System Operator (Midwest ISO). The Report assesses performance of RTOs and their wholesale markets, and only indirectly by implication examines their retail impacts. Consequently, the Report’s references to “customers” are generally to wholesale customers of RTO services and RTO market participants such as loadserving entities (LSEs), generators, and transmission customers, not to retail end-use customers. Nevertheless, what transpires in the wholesale markets ultimately impacts retail consumers, so any costs or savings produced by the creation of RTOs and their markets will ultimately be borne or enjoyed by retail consumers to some degree.

"Kelly, Susan. Truly Collaborative Transmission Planning: Breaking the Log Jam. 21 September 2006. Presentation, 11 pages."

Hogan, William. Electricity Market Restructuring: Markets, Market Design, and RTOs. 30 November 2006. Presentation, 27 pages.

Wilde, Dean. Electricity Markets Outlook. 30 November 2006. Presentation, 12 pages.

Ott, Andrew. HEPG Discussion: RTO: Fox or Hedgehog? 30 November 2006. Presentation, 10 pages.

Brown, Ashley. Load Serving Entities and Hedging: Critical Regulatory Issues. 21 September 2006. Presentation, 7 pages.

Jones, Dan. Market Monitoring and Market Design. 30 November 2006. Presentation, 15 pages.

Hogan, William. Path Dependent Transmission Access. 9 June 2006. Presentation, 23 pages.

Excerpt from the Introduction:

 

The Federal Energy Regulatory Commission proposals for Order 888 Open Access Transmission Tariff (OATT) reform arise from a continuing frustration with the Commission’s efforts to provide open access to transmission both for its own sake and to support competitive markets. The Commission has found it difficult to meet the basic requirement to avoid undue discrimination and preference in transmission services. This difficulty follows in part from the nature of the electricity grid. But more important, the transmission access procedures promulgated in Order 888 are not consistent with the requirements of reliable and efficient operation of the grid, nor do they support workable competitive markets. A better approach, more closely aligned with actual grid operations and compatible with competitive principles, is obviously needed. Unfortunately, the narrow focus in the Commission’s Notice of Proposed Rulemaking (NOPR) does not allow it to see the problems inherent in the current Order 888 framework that must be addressed to achieve the Commission’s goals.

After many prior attempts at broader reforms to meet its expansive goals for industry reforms, the Commission seeks now to narrow its scope to advancing limited changes to the OATT. The focus is on improving the consistency and transparency of the determination of available transfer capability (ATC) as the primary means to address undue discrimination. But if inconsistent ATC calculations and methods are not the underlying problem, then the proposed “solutions” will fail.

The emphasis of the past analyses has been on the defects of the OATT contract path and ATC framework. Although the Commission’s own analyses have recognized these defects, the Commission has not been able to address these matters without entangling itself in a larger debate about electricity market design and electricity restructuring. Given the impasse, it may be that the emphasis on ATC imposes too much on the Commission if it is to find a path to preventing undue discrimination and preference in transmission services. A different approach is needed.

Joskow, Paul. Regulating Markets. 22 September 2006. Presentation, 22 pages.