Transmission service outside of ISO footprints: inefficient spot prices, illiquid secondary markets and misguided planning

Abstract

FERC-approved wholesale transmission tariffs outside of ISOs impose economically inefficient hourly transmission rates for Point-to-Point (PTP) energy transfers, because they recover long-run fixed costs of transmission capacity in excess of marginal costs. In addition, secondary markets in PTP contract rights suffer from the imperfections of bilateral markets and the lack of regulatory oversight. The experience of the Western Energy Imbalance Market shows the benefits of eliminating intra-hour prices for transmission capacity, to support the redispatch of generation. FERC should require that all hourly PTP transmission charges be eliminated, that unused and uncommitted transmission contract rights be subject to a mandatory and robust capacity release program, and that transmission expansion studies quantify the benefits of removing these artificial barriers to trade. Both consumers and the environment will benefit from better use of existing transmission capacity.