A. TLRs

1. Effect of TLRs

The dramatic 472 percent increase in TLRs between the summer of 1999 and the summer of 2000 poses a definite problem for transmission access in the Midwest. The massive number of TLRs in the summer of 2000 has not caused any system-wide price spikes or any area-wide supply disruptions, but they do have a negative effect on the market. TLRs inhibit optimal functioning of the transmission system, and thereby the market, because load is not served by the least cost supplier. However, quantifying the effect of this is difficult. A lower bound estimate would be the cost to re-dispatch the 13,144 MW curtailed at the five most frequently interrupted flow gates during the summer of 2000 (see Table 2-11, in Section 3).

The TLR procedure is an inefficient instrument to use in mitigating transmission constraints. When an overload occurs on a flowgate, the Security Coordinator orders curtailment by fiat, and scarce resources are allocated by command and control instead of the market. TLR curtailment does not allow the transmission customers who value the scarce resource the most (i.e., the overloaded flowgate) to compensate others who might voluntarily cut back their transactions. Instead, all transactions that have 5 percent or more of their flow on that affected flowgate will be curtailed.

Another inefficiency can occur because the Security Coordinator can not always precisely identify which transactions are affecting the overloaded flowgate. During certain TLR events, the NERC Interchange Distribution Calculator (IDC) calculates the transaction factors for curtailments based upon control area-to-control area pairs. This calculation can result in potentially inappropriate transaction curtailments or increased loading on the affected flowgate. NERC has recognized this problem and formed the IDC Granularity Task Force to address it.

The increased incidences of TLRs appear to have eroded confidence in the Midwest transmission market. Some public power market participants indicated to Staff that the large number of TLRs harmed the liquidity of the market by stifling long-term transactions (2-3 years). They alleged that marketers are less willing to enter into multi-year contracts for fear that they will be unable to fulfill their commitments because of the TLRs.

An RTO could mitigate this problem if it consolidated all of the transmission providers into one control area and/or the RTO had the sole responsibility for calling TLRs for all of its members. Otherwise, each control area would continue to set its own procedures for determining whether to call a TLR and the information on ATC and CBM provided to the RTO would still come from individual control areas.

2. What Has Caused TLRs to Increase So Dramatically?

Staff was unable to obtain key data for this report that would have assisted us in determining the definitive reasons for the dramatic increase in TLRs during the summer of 2000. Staff attempted to obtain data from ECAR, MAIN, MAPP and SPP on the exports and imports by region for 1999 and 2000, as well as the coincident and current peak load estimates for each region. We were informed that import and export data were not available and that the peak load data for 2000 would not be available for several months. In addition, we attempted to obtain from several transmission providers system- wide snapshots for days when TLRs were called, but were informed that they did not keep snapshot data. As a result, the discussion below is somewhat speculative, based on facts that Staff were able to obtain during the period of the investigation. As discussed infra, the unavailability of this information is itself an inefficiency of the market because it undermines the ability to analyze the fluctuations of the market.

Prolonged above average temperatures are usually a major reason for TLRs because there is increased demand on the grid. However, there were more TLRs in the Midwest in July 2000 (42% of the total for the summer of 2000) than in June (28%) or August (30%), although August was the hottest of the three months. Nonetheless, weather may have been a factor in the increased TLRs because of prolonged above-average temperatures in the regions adjacent to the Midwest. For example, the adjacent SERC region was hotter than average for May through August 2000.

While the Midwest experienced a mild summer, it is bordered by two NERC regions (ERCOT and SERC) which experienced hotter than normal weather conditions. One factor contributing to the high number of TLRs was that electric power was trying to flow from the Midwest to these warmer regions. A contributing factor may be that cheaper, coal fired plants in the Midwest were trying to export electricity to SERC where it was hotter and the predominant generation was more expensive gas fired generation. While, as discussed above, Staff was unable to obtain export data to test this hypothesis, it is supported by the clustering of TLR events on the southern border of the Midwest for July 2000 and the general direction of power flows during those TLRs (see Figure 2-8, in Section 3). The table shows that most of the Midwest TLRs occurred in Kentucky, southern Illinois, Missouri, Oklahoma and Arkansas.

Some market participants have suggested that the increased incidents of TLRs, in many instances, are the result of noncompetitive behavior by vertically integrated transmission providers to benefit their affiliates. Because the Security Coordinator, who calls TLRs, often works for an integrated IOU, there exists a mixed incentive to enforce reliability on the grid and to maximize profit for the IOU. As discussed later, there has been no concerted regulatory effort to date to police the implementation of TLRs to ensure that they are utilized properly and in a non-discriminatory fashion.

Whatever the exact reason for the dramatic increase in TLRs in the summer of 2000, as discussed earlier, the large number of TLR curtailments inhibits the Midwest market by preventing load from reaching its destination and by discouraging public power market participants from entering into long-term transactions. These problems will continue until TLRs become less frequent.