With the initial phase (regional meetings) of the formation ofregional transmission organizations (RTOs) wrapped up, FERCChairman James Hoecker last week gave the electric industry a”solid B” for its efforts. There haven’t been any “breakthroughs”yet, he reported, just “frank talk….. and widespread commitmentsto continue working toward a productive conclusion.”

But this doesn’t mean there aren’t problems, he said in a speechto the Cambridge Energy Research Associates (CERA) in WashingtonD.C. last Monday. “When I look at existing ISOs [independent systemoperators] and the early formulations of new RTOs pursuant to ourOrder [2000], I see fortresses, gerrymanders, and Swiss cheese;that is to say, single-system or single-state RTOs, illogicalagglomerations of territories and arrangements that may actuallyact to disrupt markets and exact an unacceptable toll onlong-distance transmission, or staunch utility hold-outs in themidst of promising RTO regions.”

Faced with these problems, “I expect the Commission will need tofind the ‘guts’ to take additional action” to promote RTO formationin the electric industry, Hoecker told energy executives.”Voluntarism may turn out to be a bust.”

Nevertheless, Hoecker doesn’t believe FERC should automaticallydeny RTO status to transmission owners or their regionalcounterparts “just because an RTO is now a little too small, toounshapely relative to the operation of the grid, or unwilling orunable to take on every function and jump through every hoop.”After all, he noted, “RTOs will grow and evolve…..And if ‘scopeand configuration’ is not ideal in some cases, agreements onpricing and congestion management at the seams can effectivelyreplicate a bigger market and accomplish the same thing.”

In fact, “good seams’ agreements and umbrella ISO arrangementsthat embrace multiple ITCs [independent transportation companies]may well be part of how the Commission reconciles itself to RTOsthat test the lower limits of underachievement that might passOrder 2000,” Hoecker said.

On the flip side, however, he noted the tendency to form smallerRTOs could be a signal of “low expectations” or a “basicunwillingness” by transmission-owning utilities to “look down theroad at what the bulk power [market] will ultimately look like andto embrace the inevitable.”

Ironically, Hoecker said FERC’s October and January deadlinesfor industry to form or join RTOs could be part of the problem,causing utilities and other market participants to “underachieveand file an RTO proposal that is not ‘best efforts.'” In its effortto accelerate RTO formation, “the Commission may have inadvertentlyhanded some companies and regions a plausible way out of doing muchof anything.”

But he has told parties engaged in the RTO process “a solidregional plan that will plausibly lead to a regional market, filedon Oct. 15, is worth more than any half-baked, sub-optimalsubmittal made simply to beat the deadline.”

Hoecker urged Congress to support FERC’s RTO-formation efforts.”It would make the process quicker and our judgments more certain.”He suggested that lawmakers take their cue from Texas, “where thelegislature bit the bullet and pushed an ERCOT-wide ISO intoexistence.” As a result, “the pain has been minimized and theparties are happily making the adjustment.” FERC does not havejurisdiction over electric transmission in Texas.

Susan Parker

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