[Federal Register Volume 59, Number 211 (Wednesday, November 2, 1994)]
[Proposed Rules]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-27090]
[[Page Unknown]]
[Federal Register: November 2, 1994]
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DEPARTMENT OF ENERGY
Federal Energy Regulatory Commission
18 CFR Chapter I
[Docket No. RM94-20-000]
Inquiry Concerning Alternative Power Pooling Institutions Under
the Federal Power Act
Issued: October 26, 1994.
AGENCY: Federal Energy Regulatory Commission, DOE.
ACTION: Notice of inquiry and request for comments.
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SUMMARY: The Federal Energy Regulatory Commission (Commission) is
requesting comments on issues related to alternative power pooling
institutions. It also requests comments on the role of traditional
power pools in an era of increased competition. This Notice of Inquiry
is needed because of the increasing access to transmission services in
the electric utility industry and the concomitant increase in
competition.
DATES: Written comments must be received by the Commission no later
than March 2, 1995. Reply comments must be received by the Commission
no later than April 3, 1995.
ADDRESSES: Send comments to: Office of the Secretary, Federal Energy
Regulatory Commission, 825 North Capitol Street NE., Washington, D.C.
20426.
FOR FURTHER INFORMATION CONTACT:
Janice Macpherson, Office of the General Counsel, Federal Energy
Regulatory Commission, 825 North Capitol Street NE., Washington, D.C.
20426, Telephone: (202) 208-0921, (legal issues)
J. Stephen Henderson, Office of Economic Policy, Federal Energy
Regulatory Commission, 825 North Capitol Street NE., Washington, D.C.
20426, Telephone: (202) 208-0100 (technical issues)
or
Michael A. Coleman, Office of Electric Power Regulation, Federal Energy
Regulation Commission, 825 North Capitol Street, NE., Washington, D.C.
20426, Telephone: (202) 208-1236.
SUPPLEMENTARY INFORMATION: In addition to publishing the full text of
this document in the Federal Register, the Commission also provides all
interested persons an opportunity to inspect or copy the contents of
this document during normal business hours in Room 3104, at 941 North
Capitol Street, NE., Washington, D.C. 20426.
The Commission Issuance Posting System (CIPS), an electronic
bulletin board service, provides access to the texts of formal
documents issued by the Commission. CIPS is available at no charge to
the user and may be accessed using a personal computer with a modem by
dialing (202) 208-1397. To access CIPS, set your communications
software to use 300, 1200, or 2400 bps, full duplex, no parity, 8 data
bits and 1 stop bit. CIPS can also be accessed at 9600 bps by dialing
(202) 208-1781. The full text of this order will be available on CIPS
for 30 days from the date of issuance. The complete text on diskette in
WordPerfect format may also be purchased from the Commission's copy
contractor, La Dorn Systems Corporation, also located in Room 3104, 941
North Capitol Street NE., Washington, D.C. 20426.
Notice of Inquiry
Before Commissioners: Elizabeth Anne Moler, Chair; Vicky A.
Bailey, James J. Hoecker, William L. Massey, and Donald F. Santa,
Jr.
October 26, 1994.
I. Introduction
The Federal Energy Regulatory Commission (Commission) is initiating
this proceeding to solicit comments from interested persons on issues
related to alternative power pooling institutions.1
\1\Section 202(a) of the FPA reflects Congress' desire to
promote and encourage the voluntary interconnection and coordination
of utility facilities. While the Department of Energy now has
primary responsibility for Section 202(a) of the Federal Power Act,
see 42 U.S.C. 7151, 7172, all voluntary coordination and
interconnection agreements involving public utilities must be filed
with the Commission. The Commission, therefore, continues to play a
pivotal role in this area.
In addition, section 205(a) of the Public Utility Regulatory
Policies Act of 1978 (PURPA) authorizes the Commission to exempt
electric utilities, in whole or in part, from state law, rule or
regulation which prohibits or prevents voluntary coordination. Under
PURPA section 205(b)(2), the Commission also may recommend to
electric utilities that they enter into negotiations concerning
pooling arrangements.
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Since the inception of power pools, fundamental changes have
occurred in the electric utility industry. Most significant are the
enactment of the Energy Policy Act of 1992 (EPAct)2 and the
emerging development of a competitive bulk power market. The Commission
has recently announced in a series of orders its policy of promoting
competitive bulk power markets, and has emphasized the critical role of
comparable transmission access in meeting that goal.
\2\Pub. L. No. 102-486, 106 Stat. 2776 (1992).
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Given the ongoing changes in the competitive environment of the
electric utility industry--in particular, the potential for
substantially increased access to transmission--we must consider
whether we are appropriately balancing our dual objectives of promoting
coordination and competition. Indeed, industry participants in many
regions are responding to competitive changes by exploring the
possibility of changes in, or alternatives to, traditional power pools.
The Commission believes that the new alternative power pooling
institutions have great potential. In particular, they may be of
assistance in facilitating the resolution of some difficult federal-
state jurisdictional issues and in developing mechanisms for resolving
or minimizing stranded cost issues. We therefore want to explore them
in detail. We are particularly interested in determining whether
alternative power pooling institutions may have special transmission
pricing needs.3
\3\Concurrently, the Commission is issuing a policy statement on
transmission pricing in Docket No. ER93-19-000. See Inquiry
Concerning the Commission's Pricing Policy for Transmission Services
Provided by Public Utilities Under the FPA, Policy Statement, FERC
Stats. & Regs. para.______ (1994).
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We also wish to re-examine the role of more traditional power pools
in an era of increased competition.
For these reasons, we are initiating a notice of inquiry on
alternative power pooling institutions. This notice has three parts.
First, we relate our understanding of an innovative power pooling
concept proposed by two utilities in Southern California in response to
the California Public Utilities Commission's (California Commission)
inquiry into retail access (the ``Blue Book Proposal'').4 We also
note our interest in any other alternative pooling institutions that
are being explored today. Second, we briefly describe power pools as
they have evolved to date in order to provide a comparison of
traditional power pools with emerging, innovative proposals. Third, we
ask interested parties to respond to specific questions, as well as to
provide us with any other comments they may have, on alternative power
pooling institutions and existing power pools.
\4\Proposed Policies Governing Restructuring of California's
Electric Services Industry and Reforming Regulation, 151 PUR4th 73
(California Public Utilities Commission 1994).
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We note that a major focus of this notice of inquiry is on power
pooling to accomplish short-term transactions, rather than long-term
regional planning, which we addressed in our Policy Statement on
Regional Transmission Groups (RTGs).5 While power pools do some
transmission planning, it is not necessarily of a regional or long-term
nature. In contrast, as envisioned in our policy statement on RTGs,
RTGs may be better able to focus on long-term and regional transmission
planning. In this sense, RTGs and poolcos, at a minimum, would be
complementary, rather than competing, institutions. Indeed, the same
institution could perform both functions. For example, some RTGs may
decide to develop mechanisms to accommodate short-term transactions
within the RTG. The Commission is interested in exploring whether RTGs
would be appropriate institutions to accommodate power pooling.
\5\Policy Statement Regarding Regional Transmission Groups, 58
FR 41626 (Aug. 5, 1993), III FERC Stats. & Regs., Regulations
Preambles para.30,976 (1993).
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II. Alternative Power Pooling Institutions
Increased competition in the electric utility industry may signal
the need for alternative power pooling arrangements. We are interested
in considering new arrangements that could better capture the benefits
of competition in bulk power markets without unnecessarily sacrificing
coordination benefits. Serious discussion is occurring in California at
the present time concerning an alternative power pooling arrangement.
A. The Poolco Concept
Two utilities (San Diego Gas & Electric Company and Southern
California Edison Company) have each proposed creating a regional
pooling company, or ``poolco,'' in response to the California
Commission's Blue Book Proposal. Both proposals discuss some form of
restructuring, either vertical disintegration or the relinquishment of
transmission control. Divestiture has not been proposed. However, the
utilities may intend to create subsidiary companies for each function
that would remain affiliated.
Although the two proposals vary in some details, they share many
fundamental characteristics. Basically, the poolco would be an
independent entity that would not own any (or would own only a limited
number of) facilities, but would control the operation of some or all
generators, and all transmission facilities, in a region. The poolco
would be open to all generators connected to the grid, who would
automatically receive any transmission service needed to sell power
into the regional pool. In effect, the poolco would be responsible for
creating and maintaining a regional spot market for electricity. The
spot price in each trading period (perhaps hour-by-hour) would be
readily available and made known to all market participants.
Generating resources would be centrally dispatched on an hourly
basis by the poolco in much the same way as in current power pools. The
principal difference appears to be that generators would be dispatched
based on the bid price they submit to the poolco, rather than on their
running costs. The poolco would operate a least-cost (in the sense of
lowest bid) dispatch that accounts for any transmission constraints in
the same manner as an existing power pool or a single utility dispatch
center. Generators would be paid the market-clearing price\6\ during
each hour, as opposed to the bid price that each generator submitted to
the poolco.\7\ Likewise, distributors would pay the market-clearing
price in each hour. Consequently, the poolco would break even in its
basic dispatch function, since distributors would pay to the poolco
what the generators would receive from the poolco.
\6\The market-clearing price is the highest bid price of any
generator that is selected to provide service to the poolco in an
hour. Each successful bidder would receive this price, regardless of
whether its bid price was less than the market-clearing price.
\7\This method of pricing creates an incentive for each
generator to bid near its marginal running cost, since it would risk
losses if it bids less than its running costs and the poolco selects
it to run, and it would risk losses if it bids more than its running
costs and the poolco does not select it to run.
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In effect, the poolco would become the market clearinghouse for the
hourly energy market. Under the poolco concept, dispatch benefits are
implicitly allocated among sellers and buyers by the spot trading at a
market-clearing price. The poolco would have no further role in
dividing or allocating benefits. Also, the proposed poolco would have
no role in long-term energy or capacity markets. Generators and
distributors could enter into contracts outside the poolco.
Under San Diego's poolco concept as currently proposed,\8\ spot
prices would vary from one geographical location to another to reflect
transmission constraints.\9\ This would allow the spot trading to be
conducted at a price that reflects the real ability and limitations of
the grid to move power from low-cost to high-cost areas. The proposal
includes opportunity cost pricing for grid congestion, as well as
tradable capacity rights.
\8\We understand that both San Diego's and Edison's proposals
continue to be revised, and that the two proposals may become more
similar as details are worked out.
\9\Under Edison's proposal, in contrast, spot prices would not
reflect transmission constraints.
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While the poolco concept contains many similarities to existing
power pools, it appears that significant differences exist between a
traditional power pool and a poolco, particularly with respect to both
generation and transmission pricing. Although a traditional power pool
generally has flexible cost-based pricing schemes,\10\ we understand
that a fundamental characteristic of the California poolco concept is
that all short-term power sales would occur at a market-clearing price.
In other words, whereas in a traditional power pool the offer-price
mechanisms are cost-based, in the California poolco proposal they would
be based on economic bids with an incentive to bid at or near the
utility's marginal running costs.
\10\These range from split-savings (e.g., Pennsylvania-New
Jersey-Maryland Interconnection (PJM)) to a rate that falls under a
price cap based on pool members' composite costs (Mid-Continent Area
Power Pool (MAPP)).
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Another difference between traditional power pools and the
California poolco proposals is their membership. Today, some power pool
agreements include explicit membership criteria. Most include no
explicit provisions addressing the admission of new members. However,
most existing pools to some extent limit membership. On the other hand,
the California poolco proposals, as we understand them, would require
open membership for at least all bulk power participants.
The California poolco proposals represent an interesting
alternative approach to achieving operating efficiency and competition
in hourly electricity markets. However, the proposals are in an early
stage of development and a number of significant transmission issues
apparently have not yet been resolved (for example, how transmission
owners would be compensated for the existing facilities, how to
determine priorities for use of the transmission grid, how to allocate
expansion costs and how to induce appropriate expansion). Since the
California poolco proposals raise several questions and issues that
need additional consideration, we have included a list of questions in
section III.C of this Notice on which we seek comments from interested
persons.
B. Other Alternative Power Pooling Institutions
There may be other alternative pooling proposals of which the
Commission is not aware. The above discussion is not intended to limit
the scope of this inquiry. The Commission is interested in all
innovative pooling proposals intended to capture the benefits of
competitive bulk power markets while preserving those coordination
benefits that are consistent with competition.
The issue of alternative power pooling arrangements, and the
California poolco proposal in particular, is part of a larger
discussion concerning the future structure of the electric power
industry in the United States. In addition to the California poolco
concept, other innovative institutions have been proposed which, as the
Commission comprehends them, might either work in tandem with a poolco,
or separately from a poolco to facilitate the development of a more
competitive bulk power market. For example, some have suggested that
the electric power industry could be restructured to include: (1)
generating companies, known as ``gencos,'' which are groupings of
generators that may or may not be affiliated with utilities that
compete to sell electricity in the wholesale spot and contract markets;
(2) transmitters, known as ``transcos'' or ``gridcos,'' which are
companies that would separately own and maintain a regional
transmission grid; and (3) distributors, known as ``discos,'' which are
utilities that would operate the local distribution systems and
purchase energy in the competitive wholesale market for resale to
ultimate customers.
In such a restructured market, the poolco could be a fourth player
that could control the operation of the generation and transmission
facilities owned by gencos and gridcos; i.e., the poolco could dispatch
the system based on buy/sell offers from individual gencos and discos.
In addition, the poolco could provide any necessary ancillary services
(e.g., load following, spinning reserves, and reactive power) at cost.
In addition to proposals to restructure the electric power industry
along functional lines, there may be other alternative institutional
structures for the industry that warrant consideration in this inquiry.
The Commission is interested in expanding its appreciation of any such
proposals for alternative institutional structures. In particular, the
Commission is interested in the extent to which such alternative
institutional structures might facilitate the achievement of a more
competitive bulk power market in a way that the current institutional
structure of the industry may not. We have included several questions
in this regard as part of section IV. of this notice.
III. Existing Power Pools
In order to fully understand the issues presented by alternative
power pooling institutions, it is necessary to understand existing
power pools. In addition, given the competitive changes in the industry
and the fact that new pooling alternatives are emerging, it is
appropriate to consider whether existing power pools are functioning
appropriately and, if not, to consider what changes are necessary.
Historically, utilities began coordination activities by entering
into simple bilateral arrangements, progressing gradually to more
complex contractual agreements. Such agreements may simply cover an
exchange of energy and power, or they may cover a variety of services.
They generally are not considered to be pooling agreements unless they
include coordination of reserve generating capacity and, in most cases,
some coordination of planning and construction in addition to operating
coordination. \11\
\11\Although the terms ``pooling'' and ``coordination'' are
sometimes used interchangeably, generally, the term ``coordination''
refers to the whole spectrum of relationships between utilities, and
``pooling'' refers to more formalized agreements between utilities
to operate and plan their systems in a manner that achieves the
greatest regional economy and reliability.
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Traditional power pools have provided to their members significant
economic benefits and operating efficiencies, including: reduced
operating costs resulting from joint dispatch; reduced fixed costs
resulting from joint construction of generating units and reserve
sharing; and increased system reliability resulting from reserve
sharing and regional planning.
Existing pools vary a great deal in the extent to which they are
integrated, i.e., to which they plan and operate their individual
systems as a single system.\12\ The most highly integrated pools are
referred to as ``tight'' pools.\13\ Tight pools extensively coordinate
their planning and operations in both the long and short run, and in
theory provide the greatest benefits. They provide for joint planning
on a highly coordinated basis and for centralized dispatch of
generating facilities. They also establish contractual requirements
with respect to generating capacity and operating reserves, together
with financial penalties to enforce reserve requirements. \14\
\12\Other pooling arrangements may coordinate extensively, but
only involve a few companies, e.g., the coordination arrangement
between Detroit Edison Company and Consumers Power Company. Some
coordination arrangements often referred to as power pools are, in
fact, simply vehicles for bilateral trades of economy energy, such
as Western Systems Power Pool (WSPP) and Florida Energy Broker.
\13\There are three tight power pools operating today. NEPOOL
operates in six New England states, and its 90 members include
investor-owned utilities (IOUs) and publicly-owned utilities. The
New York Power Pool (NYPP) operates in the State of New York, and
its members include the seven IOUs in the State and the Power
Authority of the State of New York. PJM operates in the Mid-Atlantic
region, and its eight members include only IOUs.
\14\There are also several affiliated utility systems
(registered holding companies under the Public Utility Holding
Company Act of 1935) that operate as tight power pools. Southern
Company, Entergy Corporation, American Electric Power Company,
Allegheny Power System, Central & South West Corporation, General
Public Utilities (which is itself a member of PJM), and Northeast
Utilities (which is itself a member of NEPOOL). Together, these
affiliated utility systems and tight pools account for approximately
40 percent of the generating capacity in the Eastern
Interconnection.
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One of the key characteristics of a tight power pool is central
dispatch, which ensures short-term efficiency by dispatching the pool's
combined generating resources to meet the pool's combined loads,
without regard to unit ownership. The benefits of central dispatch
(i.e., the savings realized by dispatching jointly rather than
individually) are shared among pool members. \15\
\15\Even when pool members undertake bilateral trades with other
pool members to increase their revenues from pool interchange, the
pool dispatch is unaffected. The bilateral agreement is simply a
mechanism for adjusting the pool's after-the-fact benefit sharing
formula.
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A long-term benefit of a tight power pool is joint action to
enhance reliability. A tight pool coordinates maintenance to ensure
that adequate reserves are maintained, that is, units are taken out of
service on a staggered basis. Also, tight pools undertake some regional
planning of production and transmission to facilitate joint solutions
to regional needs and problems.
Finally, tight pools conduct transactions with neighboring pools to
realize additional economy savings and to increase reliability whenever
possible.
Tight power pools generally require that members provide
transmission access to other members without a direct charge for
economy trades effected through central dispatch as compensation for
use of their facilities. However, the transmission providers may be
assigned a share of the savings resulting from the central dispatch.
Affiliated power pools, i.e., the registered holding companies, have
more extensive transmission access provisions that generally include
some form of transmission equalization payments among members.
Pools that are characterized by a lower level of coordination are
called ``loose pools.'' \16\ For example, while the participating
utilities work together to establish principles and practices for
interconnected operation, review area power supply problems and
establish criteria for power supply adequacy, exchange generation and
transmission construction plans, and plan coordinated efforts to attain
optimal economy and reliability, there is no central dispatch and there
may be less joint planning.
\16\An example of a loose pool is MAPP, which operates in the
Midwest. Its members (as well as associated members and a liaison
participant) include IOUs, publicly-owned entities, generating and
transmitting cooperatives, Canadian crown corporations and one
Federal power marketing administration (the Western Area Power
Administration).
As discussed in section IV of this Notice, the Commission seeks
comment on a number of questions pertaining to existing power pools
(both tight pools and loose pools), and their strengths and weaknesses
in light of emerging competitive bulk power markets.
IV. Request for Comments
In order to assess the merits of alternative power pooling
institutions, including the California poolco proposals, and to
evaluate whether our existing policies will impede the development of
such institutions, the Commission seeks comments from interested
industry participants. We also believe that this proceeding is an
appropriate forum to consider whether any changes should be made in our
policies concerning existing power pools. Our intention is to ensure
that our policies, while continuing to maintain adequate and reliable
service, are consistent with the development of a competitive bulk
power market. Answers to the questions below should refer to the
number(s) of the specific question(s) when possible. In addition,
commenters may address any other matters related to these issues. We
are interested in all aspects of potential changes in, or alternatives
to, existing power pools.
Question 1. What alternative power pooling institutions might be
beneficial? What are the strengths and weaknesses of these
alternatives? What special transmission pricing needs, if any, would
such alternative pooling institutions have? What specific benefits
would an alternative bring that are not available today? What
specific benefits of existing pools would be lost? What, if any,
benefits would alternative power pooling institutions provide
compared to bilateral trading? How would alternative power pooling
institutions differ from a regime of bilateral trading?
Question 2. Do any current Commission policies impede the
formation of beneficial alternative power pooling institutions? What
changes in our existing policies, if any, including pricing
policies, are needed to encourage pools that facilitate competitive
bulk power markets?
Question 3. In discussing any alternative power pooling
institution, please address how the adequacy of generation and
transmission services would be ensured, e.g., maintenance of
adequate generation and transmission reserves and construction of
needed generating and transmission capacity? How would reliability
be ensured, e.g., control of transmission systems, voltage support,
reactive power, loop flow, load following, backup services and other
control area services?
Question 4. What are the conditions required for alternative
power pooling institutions to be beneficial, e.g., a minimum number
of sellers or buyers, a minimum geographic size, maximum market
share for any seller or buyer, open membership, appropriate
governance rules? Should participation by generators in the
alternative pool's area be voluntary or mandatory?
Question 5. Do alternative power pooling institutions have the
potential to help resolve or minimize stranded cost issues? If so,
how?
Question 6. How would specific alternative power pooling
institutions be regulated? In particular, can these institutions be
designed to fit easily into the existing Federal-State regulatory
structure so as to avoid duplicating the regulation of pool
functions?
Question 7. What are the merits of proposals to restructure the
electric power industry along functional lines such as the genco-
gridco-disco delineation? Should the Commission be prepared to
proceed with poolco-type proposals in advance of any functional
utility restructuring efforts, or should the Commission refuse to
act on poolco-type proposals unless the functional restructuring
occurs simultaneously? Does such a restructuring have merit even if
an alternative power pooling arrangement is not adopted? Would such
a restructuring facilitate the development of a more competitive
bulk power market in a way that the current institutional structure
of the electric power industry cannot?
Question 8. In addition to the proposal mentioned in the
preceding question, are there other alternative institutional
structures for the electric power industry that warrant the
Commission's consideration in this Inquiry?
Question 9. What are the strengths and weaknesses of today's
power pools? We are particularly interested in concrete examples
related to existing power pools. Should the Commission consider
changing any existing power pool practices or policies to facilitate
competitive bulk power markets?
Question 10. Would changes to existing power pools be preferable
to creating new pooling institutions? Is an RTG an appropriate
institution to become a power pool? Or should the RTG's transmission
planning function be kept separate from the pool's generation
market-clearing function?
Question 11. Can a pool provide advantages to its members
without unduly preferring members to non-members? How should pool
members relate to non-members in an open access market? Are any
improvements in information availability necessary for existing
pools or alternative pooling institutions to be more beneficial?
What reciprocity conditions are appropriate between pool members and
non-members? How would a state policy of retail access affect pool
membership conditions and reciprocity obligations? What if retail
access were available in only some states in the pool?
Question 12. How should the Commission's recently-announced
policy concerning comparability of transmission services be
implemented with respect to alternative power pooling institutions
and/or existing power pools?
V. Public Comment Procedures
The Commission invites all interested parties to submit an original
and 14 copies of their written comments. Comments should not exceed 100
pages in length. In addition, commenters should submit an executive
summary not to exceed five pages.
The Commission will also permit interested persons to submit reply
comments in response to the initial comments filed in this proceeding.
Reply comments should not exceed 50 pages in length.
Persons with common interests or views are encouraged to submit
joint comments. Commenters should double space their comments, provide
a concise description identifying the commenter, and should reference
Docket No. RM94-20-000. In addition, commenters should submit a copy of
their comments on a 3\1/2\ inch diskette in ASCII II format. Initial
and reply comments must be filed with the Office of the Secretary,
Federal Energy Regulatory Commission, 825 North Capitol Street, N.E.,
Washington, D.C. 20426, no later than March 2, 1995 for initial
comments and April 3, 1995 for reply comments.
All written comments will be placed in the Commission's public
files and will be available for inspection in the Commission's Public
Reference Section, 941 North Capitol Street, NE., Washington, D.C.
20426, during regular business hours.
By direction of the Commission.
Lois D. Cashell,
Secretary.
[FR Doc. 94-27090 Filed 11-1-94; 8:45 am]
BILLING CODE 6717-01-P
