Transmission owners flexed their muscles Wednesday, uniting to block proposals that would allow network load customers more frequent opportunities to switch to nodal pricing.

Two proposals by retail marketer Direct Energy to allow a limited number of such switches monthly were rejected by the Market Implementation Committee after utility representatives said the changes would create administrative problems for their electric distribution companies (EDCs).

David Scarpignato, head of PJM regulatory affairs for Direct Energy, said the changes would allow retail marketers to offer more innovative products. He said it would not have significant impact on EDCs or other market participants because it would cap switches at to 5% of the EDC network service peak load. (MIC Considers Loosening Rules on Zonal-Nodal Price Switching)

“This lines up the retail market to the wholesale market better,” he said. “For people who say they support competition, put your money where your mouth is.”

“The existing rules were well-vetted and balanced,” countered Scott Razze, manager of interconnection & arrangements for Pepco Holdings Inc. “Couching this as a minor change is a disservice.”

Few Make the Switch

The Members Committee in 2005 unanimously endorsed a Tariff change allowing the switch to nodal pricing. But after more than seven years under the new rules, all but 15% of PJM load is still using zonal pricing.

The rules give customers one chance a year to switch to nodal pricing, effective June 1 in alignment with the planning year. Customers must provide notice of their intention to switch by October or January depending on type of service.

Scarpignato said the annual window for switching has limited retail marketers’ ability to provide innovative products such as price responsive demand, which he said is most attractive to those with nodal pricing. If a customer’s current contract expires in April, it may not start shopping for a new provider until February, Scarpignato said. But the customer could not make the switch to nodal pricing until the following June — more than a year later.

Opponents of the Direct Energy’s proposal said they were concerned that remaining zonal customers could see their costs increase with a defection of others in their Energy Settlement Area to nodal pricing.

Others cited the impact of intra-year switches on the values of Financial Transmission Rights and Auction Revenue Rights. “That’s really what [the opposition to Direct’s proposal] is all about,” said Marji Philips, ISO services director for Hess Corp.

FTR Windfall

PJM expressed similar concern in explaining to the Federal Energy Regulatory Commission why stakeholders limited switches to once a year. “It is readily apparent that where the zonal price is higher than the price that would be associated with the customer’s specific bus distribution, FTRs initially allocated to hedge the customer’s congestion based on a zonal definition of its load will provide a windfall to that customer,” PJM said.

The merits of the issue became tangled with a parliamentary question when John Horstmann, director of RTO Affairs for Dayton Power and Light, asked for a poll on support for the current rules before a vote on Direct’s proposals.

A Bias Toward Change

John Brodbeck, director of regulatory affairs for Pepco, also called for the status quo poll. “We believe [the PJM issue process] has a bias toward change and a bias toward rapid change,” he said.

After originally promising a poll after a vote on Direct’s proposal, MIC Chairwoman Adrien Ford deferred a decision on Horstmann’s request to give her time to consult PJM rules. “Whatever we do today,” she noted, “could set precedent.”

Ford ultimately ruled that the poll would be taken first. The overwhelming support for the status quo — which was supported by a 98-38 (72%) vote — made the subsequent vote on Scarpignato’s proposals a formality.

Both proposals would have limited intra-year switches to 5% of the EDC network service peak load. As under current rules, customers would be barred from switching from nodal back to zonal without FERC approval.

Direct’s first proposal, which would have further limited switches to five per month per EDC, received less than 35% support. A second option, which would have set the monthly limit at 50 per EDC, won only 28% support.

Those supporting either of Direct’s proposals included retailers, demand response provider EnerNoc, the North Carolina Electric Membership Corp., industrial energy users, the New Jersey Public Power Association and Citigroup Energy, Inc.

Utilities (registered as transmission owners and generators) voted overwhelmingly in opposition.

Not the Last Word

The defeat at the MIC — where some individual TOs hold as many 15 votes — is not the final word.

Scarpignato can bring the proposal before the Markets and Reliability Committee, where a sector-weighted vote would limit the strength of the transmission owners to 20%.