FERC Filings
COMMENTS OF THE ELECTRIC POWER SUPPLY ASSOCIATION
CBM HAS AN ADVERSE IMPACT ON COMPETITION AND VIOLATES THE PROVISIONS OF ORDER NO. 888
EPSA views the CBM issue as a very important one and appreciates the Commission's efforts to address it through a Technical Conference. EPSA recognizes that a certain amount of transmission transfer capability must be reserved in order to ensure that the interconnected transmission network is secure under a reasonable range of uncertainties in system conditions. However, in a competitive environment, it is not appropriate or fair for transmission providers to withhold from the market (and not pay for) firm transfer capacity additional to any transmission reliability margin. Doing so inhibits access to more competitively priced power in the marketplace which, in turn, deprives consumers of the benefits competition brings to the electricity industry. Instead, the transmission capacity withheld as CBM should be included in the determination of ATC.
The most important point is that CBM is an economic and not a reliability issue. Firm transmission service is a valuable commodity for all market participants. As the Commission notes in its "Staff Attachment" to the Conference Notice, CBM is "generally supported on the ground that it reduces the cost of maintaining generation reliability" when compared with the alternatives. The fact is that the current use of CBM is simply an indirect means for transmission providers to reduce -- at the expense of other power suppliers -- the cost of serving their load by reducing the amount of generation needed to be installed or otherwise available in the control area. In the attached comments of Dr. Ross Baldick, he points out that:
Withholding from the open-access market a portion of capacity between control areas under the auspices of CBM is unrelated to reliability. . . . The extent to which a load server relies on reserves imported over an intertie, as opposed to in-area generation capacity, should be an economic decision alone. It has no inherent effect on reliability.
(See, Comments of Dr. Ross Baldick on behalf of the Coalition for a Competitive Electricity Market and the Electric Power Supply Association, Appendix A.)
In addition to having no reliability value, CBM is fundamentally and profoundly at odds with the Commission's commitment to comparability expressed in Order No. 888. CBM's adverse impacts on the competitive market are myriad.
First, by using CBM to substitute for generation reserves, rather than using unit and capacity purchases, transmission providers can reduce the short-term cost of serving customers. This option, however, is not available to competitive power suppliers. Thus, CBM bestows a market advantage on transmission providers over other power suppliers and undermines the fundamental premise of comparability underlying Order No. 888. Transmission providers, and only transmission providers, can secure generation reserves using CBM, which enables them to offer a product to their customers that competitive suppliers are unable to match -- not for competitive reasons but because they lack the transmission providers' priority access to transmission service in the guise of CBM. This is inherently inefficient and antithetical to a competitive market.
In addition, since CBM has the effect of limiting the ability of competitive power suppliers to compete with incumbent utilities, it enhances the market power of incumbents. The Commission has explicitly recognized in Order No. 888 that customers are the ultimate beneficiaries of robust competition in the bulk power market. To the extent that competitive power suppliers are barred from market entry or significantly disadvantaged by market rules, they will ultimately be unable to gain sufficient market share to provide benefits to consumers.
Second, CBM reduces the megawatts that would otherwise be included in ATC calculations. This allows transmission providers to significantly reduce the amount of transfer capacity over constrained interfaces, thus precluding other power suppliers from reaching those markets for their power. CBM withdrawals are not insignificant, in some instances involving fifteen percent or more of the total transfer capacity (TTC). If this capacity were made available to all market participants on a non-discriminatory basis, the liquidity needed for more robust markets would be almost immediately available.
Third, CBM allows transmission providers to rebundle transmission and generation services in a manner that was intended to be eliminated by Order No. 888. Since transmission providers, and only transmission providers, can withdraw TTC to support their generation sales, they can offer a rebundled product that no other supplier can match. Again, this undercuts a fundamental mandate in Order No. 888, which required that transmission and generation be unbundled.