A Slightly Belated Note on FERC’s SMD

By Steven Brown, Senior Associate Editor

Writing an editorial column for a bimonthly trade journal brings with it a unique challenge. Since we’re published on an every-other-month basis, “news” items occasionally get to simmer (or in some cases, stagnate) for quite a while before I have a chance to publish my thoughts on them.

This is one of those cases. I’m probably one of the last editors in this industry to take a turn at commenting on FERC’s proposed Standard Market Design rule. On the positive side, I’ve had a goodly amount of time to examine the proposed SMD, listen to the commentary of others, and form an opinion that is hopefully a little better than knee-jerk.

And let’s face it: If we take history as a guide, it’s likely we’ll all be talking about SMD for quite a while before we actually see anything implemented, so I’m not that late. (How are we doing on implementation of Order 2000, by the way?)

If you haven’t had a chance to study the NOPR for SMD, it’s fairly easy to find on FERC’s Web site—maybe not so easy to read. The complete copy of the NOPR weighs in at a Tolstoyan 640 pages, so clear your calendar and pack a lunch before you head over to www.ferc.gov.

SMD is FERC’s third stab at reconciling the requirements of a competitive wholesale power market with a transmission system designed with no intention of ever supporting wholesale trade. The SMD rule would clarify and solidify the markets hinted at in FERC Orders 888/889 and 2000. Central to SMD is the idea of Network Access Service, a single flexible transmission service that would apply consistent transmission rules for all customers. The rule would bring consistency and clarity to the chaotic hodgepodge of rules and tariffs currently governing the competitive bulk power market. It would also promote a broader regional approach to transmission management by relying on independent transmission providers and large RTOs to unify a transmission system that, as it currently stands, could serve as a definition for Balkanization.

Clarifying the rules of the game and the structure of the market should lead to a much more stable climate for investment in the physical transmission infrastructure (towers and cable) and the technologies that support it (SCADA/EMS, state estimator programs, FACTS, etc.). Not to beat a dead horse, but that investment is sorely needed.

Transmission system investment has declined steadily for a quarter-century. NERC has estimated the need for $56 billion in investment over the course of the next 10 years to eliminate the growing problem of congestion on our transmission lines. We haven’t seen that level of investment in the transmission system since the late 1960s/early 1970s.

SMD looks to be the blueprint from which the transmission system can be rebuilt to support wholesale competition. FERC believes it can have a completed SMD rule ready for adoption by year’s end, with implementation in 2003 and 2004. It’s time to get on board. SMD is a good idea, and it needs to be implemented. Soon.

Or we could spend the better part of a year arguing that SMD usurps states’ rights or some other nonsense. Who needs market clarity and a stable investment climate anyway?

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