APPA's Competitive Market Plan - American Public Power Association

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• Resource adequacy standards, increased bilateral contracting, use of owned generation, and an optimization market that together would improve the reliability of electricity service. 6 APPA’s Competitive Market Plan: 2011 Update www.PublicPower.org
II. Background T his plan originated in a proposal, first presented in APPA’s February 2008 paper “Consumers in Peril,” 29 to restructure current “Day Two” RTOs as “Day One” RTOs. 30 After careful investigation and refinement of this concept, APPA decided that the best approach would be to develop a hybrid of the best elements of both RTO structures. Current Day Two RTOs operating in the United States include the PJM Interconnection (“PJM”), the Midwest Independent Transmission System Operator (“MISO”), ISO-New England (“ISO-NE”), and the New York Independent System Operator (“NYISO”) and the California ISO (“CAISO”). The Southwest Power Pool (“SPP”) is currently the only example of a FERC-approved Day One RTO. 31 For the remainder of this paper, the term RTO will be used to refer to a Day Two RTO. This paper will not delve into all of the problems LSEs have experienced with RTOs. To briefly summarize, the CMP was developed to remedy the most problematic aspects of RTO markets at the time, which are briefly outlined below and discussed in greater detail in Consumers in Peril: 32 • The use of bid-based offers into the day-ahead and real-time markets provides opportunities for potential exercises of market power through the use of strategic bidding strategies, and the absence of any real relationship between prices and marginal costs reduces the price transparency needed for true competition. • The lucrative nature of the RTO-operated energy and capacity markets had has produced supra-competitive profits and has made incumbent sellers reluctant to enter into long-term bilateral power supply contracts at prices not directly linked to RTO-run spot market prices (plus substantial premiums in some cases). While new market entrants are now interested in long-term power supply contracts to support the financing of their generation projects, it is difficult for them to find 29 “Consumers in Peril: Why RTO-Run Electricity Markets Fail to Produce Just and Reasonable Electric Rates,” APPA, February 2008 available at: http://www.publicpower.org/files/PDFs/ConsumersinPeril.pdf . The policy recommendation to restructure RTO markets appears in Section 5, which is the focus of this document. 30 A “Day Two” RTO refers to a market structure where the RTO manages the transmission grid within its footprint to ensure non-discriminatory transmission access and reliability, runs centralized markets for energy (day-ahead and real-time) priced using locational marginal pricing concepts, and provides financial transmission rights (FTRs) to hedge the associated transmission congestion costs. Depending on the market design, a Day Two RTO may also run centralized markets for ancillary services and capacity. A Day One RTO does not administer centralized spot markets, except perhaps for a balancing market, but does oversee management of the transmission grid for reliability and open-access purposes. 31 SPP is has announced its intent to implement a Day Two market, and the most recent estimate for implementation is March 2014. Integrated Marketplace Project Milestones, SPP Market Working Group, October 25, 2010, http://www.spp.org/section.aspgroup=1985&pageID=27 32 See Ch. 4 of “Consumers in Peril: Why RTO-Run Electricity Markets Fail to Produce Just and Reasonable Electric Rates.” www.PublicPower.org APPA’s Competitive Market Plan: 2011 Update 7
Page 1: 2011 Update APPA’s Competitive Ma
Page 4 and 5: Acknowledgements APPA would like to
Page 6 and 7: Preface to the Competitive Market P
Page 8 and 9: in PJM, the recent battles over mea
Page 10 and 11: the New England generators filed a
Page 12: light of these new EPA regulations.
Page 15 and 16: supply products in determining sell
Page 17 and 18: I. Introduction T his paper present
Page 19 and 20: of the markets from citing these lo
Page 21: capacity market, resembling PJM’s
Page 25 and 26: light on whether such prices are ju
Page 27 and 28: difficult measurement and verificat
Page 29 and 30: power sold through the optimization
Page 31 and 32: IV. Role of State Regulatory Agenci
Page 33 and 34: depreciated units and other resourc
Page 35 and 36: APPA is most concerned by the Commi
Page 37 and 38: V. Bilateral Contracts O ne of the
Page 39 and 40: In addition to the financial incent
Page 41 and 42: No data on bilateral contracts was
Page 43 and 44: VI. Market Power W ithout new gener
Page 45 and 46: Moreover, MM State of the Market re
Page 47 and 48: Limited-run resources (e.g., genera
Page 49 and 50: evamped optimization market with th
Page 51 and 52: LTTR along with approval of new net
Page 53 and 54: ased security-constrained economic
Page 55 and 56: determined by the states in the pow
Page 57 and 58: possible that many projects that so
Page 59 and 60: the RTO-wide resource adequacy requ
Page 61 and 62: independent third party designated
Page 63 and 64: XI. Transmission Planning A paralle
Page 65 and 66: XII. Transition Issues I t has now
Page 68 and 69: APPENDIX A Division of Responsibili
Page 70: esource mix with an overreliance on

APPA's Competitive Market Plan - American Public Power Association

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