Should transmission owners get paid extra for distance and voltage?
Bruce W. Radford is editor in chief of Public Utilities Fortnightly.
While the Midwest now appears set on competitive bidding for the electricity commodity, taking from PJM such tried-and-true elements as locational marginal pricing (LMP), financial transmission rights (FTRs), and a day-ahead market with a security-constrained dispatch, the region remains split over the pricing of transmission.
The fight centers on the network of ultra-high-voltage transmission lines built years ago by American Electric Power (AEP). Who should pay for that network under a market regime? The dispute asks no less of federal regulators than how to divvy up the profits and spoils of electric restructuring across geographic regions and industry sectors.
J. Craig Baker, senior vice president at American Electric Power, says it's only fair to give credit to utilities and ratepayers for the value they have added to the transmission network: "Utilities that have invested in strong and highly interconnected transmission systems bring valuable assets that contribute significantly to the expansion of markets."
But on the other side, consultant Roy Shanker talks of a world ruled by commodity prices, as in PJM, New York, and New England, where the LMP at any given node defines the worth of the underlying grid assets: "Locational marginal prices coupled with financial transmission rights," he says, "these are the key economic signals. The basic energy markets are the best tool for reflecting the regional value of transmission."