Experts worry that SMD will weaken grid

Patricia Irwin
Contributing Editor

FERC’s latest notice of proposed rulemaking (NOPR) on standard market design (SMD) has the transmission community thinking seriously about where this is all going. And, some are concerned that the SMD could weaken, not strengthen the transmission system.

The SMD NOPR is big and complex. Among other things, it should create a transmission system that is highly independent from generation, sends appropriate price signals to the market through the use of locational marginal pricing (LMP) and congestion revenue rights (CRR), and relies on regional planning and reserve capacity to help insure reliability. But, there are some things in the SMD, missing from the SMD, or just not clearly spelled-out, that are worrying market participants.

It’s all about capacity

Of greatest concern to Nick Winser, senior vice president, National Grid, Westboro, Mass, is the poor condition of the US transmission system and the lack of robust transmission capability.

“We very much applaud the direction of the NOPR. We think it is the right thing for the U.S. to be doing. And, we believe that if the United States doesn’t deregulate, it will damage the productivity of the economy. But, this country really needs to improve its transmission system. In a competitive market the transmission system is even more important than in a regulated one because it is the very mechanism required to get generators to compete head to head with one another,” says Winser.

“I believe the NOPR could make it harder to get new transmission built because prior to construction, companies would have to work through more processes, which would be more open to litigation. And the NOPR could give people (who have a strategic investment in not seeing transmission built) the ability to delay construction. Let’s face it; it is hard enough today to enhance transmission systems. We don’t need to make it harder,” says Winser.

Winser is also concerned that the NOPR does not do enough to encourage active management of the system. “You know there are countless things that we can do to add an awful lot of capacity to circuits—not run equipment to name plate, use real time monitoring, retension overhead lines, etc. We’ve driven up the capability of the UK system by a quarter. To get a quarter more out of a transmission system is pretty significant.

“There is little in the NOPR to encourage active management. What is in there is a proposal—a tentative one—that transmission owners should be dinged for congestion revenue right (CRR) shortfalls. We believe that this is at least an acknowledgement that transmission companies need to get out there and do real engineering (not financial engineering) to make transmission systems work better, but more needs to be done to encourage hands-on, real time management of the system,” says Winser.

Where is the clarity of vision?

Others, like Paul McCoy, senior vice president, transmission systems operations, TransElect, Reston, VA, insist that FERC must more clearly spell out its vision of the future.

“One issue we have with FERC’s SMD is that it creates a new type of transmission company—the independent transmission provider (ITP). It isn’t much different from an RTO, except in scale. The SMD should more directly specify that an ITP is not the end point of restructuring. The ultimate goal of FERC’s plan is to blanket the county with RTO networks. The ITP is only one step toward this goal,” says McCoy.

“While the ITP option is a pragmatic solution, it can only lead to problems. No organization, once formed, wants to plan its own demise. In addition, stakeholders may become comfortable with this half step toward the final market structure. In short, once formed the ITPs may not easily dissolve in the future,” says McCoy.

“FERC also needs to be clear that the organizations responsible for planning, take regional needs into account. For any problem, there is a range of solutions—transmission solutions, generation solutions, load management. Once a solution is chosen, planners have to consider how the bid process, as contemplated in the SMD NOPR, will proceed.”

“There are many points where the regional planning process can get derailed or bogged down and there is the possibility that nothing will get done—especially when transmission projects involve multiple states. This leads to a scenario where transmission expansion is a secondary option, leading to sub-optimal application of generation or load response solutions,” says McCoy.

Maximize builder options

Jim Fama, Executive Director, Energy Delivery, Edison Electric Institute, Wash DC, is concerned that the NOPR will put a damper on new transmission line construction by relegating integrated owners (traditional companies that own both transmission and generation) to the position of ‘builder of last resort.’

“Although many wholesale market problems may be solved by adding generation and using load management, EEI believes that there is a critical need for additional cost-effective transmission infrastructure. FERC needs to encourage all players to build transmission—independent transmission companies, integrated owners and merchant transmission companies. Our problem with the NOPR, in this regard, is that the integrated owners have been relegated to builders of last resort in the transmission planning section,” says Fama. “Wholesale markets need adequate transmission to function smoothly. This is no time to take a transmission building option off the table.”

“If planners decide that the wholesale market needs infrastructure, the Commission proposes to meet the need through an all-source, RFP process. If the market doesn’t respond, meaning that no generation or transmission companies are interested and load response will be not be sufficient, then an integrated owner builds the needed transmission,” says Fama.

“Right now, FERC gives independent transmission companies the right of first refusal to build transmission within their foot-print, but not to the traditional, integrated companies. We think they should also have that right,” says Fama.

Irwin is a professional engineer who began her career as a substation engineer with an East Coast utility. She is an experienced technical writer and has written articles for a variety of publications. She can be reached at EditorEW@aol.com.

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