Power system expansion planning and pricing in a deregulated environment

Summary form only given as follows. The FERC in its RTO Order 2000 reaffirms the requirement that an RTO must (1) encourage market-motivated operating and investment actions for preventing and relieving congestion; (2) accommodate efforts by state regulatory commissions to create multi-state agreements to review and approve new transmission facilities, coordinated with programs of existing Regional Transmission Groups (RTGs) where necessary; and (3) file a plan with the FERC with specified milestones that will ensure that it meets the overall planning and expansion requirement no later than three years after initial operation, if the RTO is unable to satisfy this requirement when it commences operation. In the alternative, the RTO must demonstrate that an alternative proposal is consistent with or superior to these three requirements. The FERC expresses its preference for market-based plans, and noted that the pricing mechanisms and actions used by the RTO as part of its transmission planning and expansion program should be compatible with the pricing signals for shorter-term solutions to transmission constraints (i.e., congestion management) so that market participants can choose the least-cost response. Development and implementation of transmission projects remains a major challenge in the new competitive environment. Alternative business models including RTOs, and Transcos have been proposed as the best infrastructure under which appropriate transmission investments can be made to ensure the security of the transmission grid at least cost. This presentation discusses the various analytical approaches for evaluating prospective transmission projects. Two areas of particular difficulty are also discussed. These are: dealing with uncertainty and the interdependence of transmission and generation investment. Finally, the incorporation of market power in the wholesale electricity market into the transmission evaluation process is also discussed.