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Industry Gets 'Solid B' for RTO Effort, But Problems Persist

Industry Gets 'Solid B' for RTO Effort, But Problems Persist

With the initial phase (regional meetings) of the formation of regional transmission organizations (RTOs) wrapped up, FERC Chairman 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 commitments to continue working toward a productive conclusion."

But this doesn't mean there aren't problems, he said in a speech to the Cambridge Energy Research Associates (CERA) in Washington D.C. last Monday. "When I look at existing ISOs [independent system operators] and the early formulations of new RTOs pursuant to our Order [2000], I see fortresses, gerrymanders, and Swiss cheese; that is to say, single-system or single-state RTOs, illogical agglomerations of territories and arrangements that may actually act to disrupt markets and exact an unacceptable toll on long-distance transmission, or staunch utility hold-outs in the midst of promising RTO regions."

Faced with these problems, "I expect the Commission will need to find the 'guts' to take additional action" to promote RTO formation in the electric industry, Hoecker told energy executives. "Voluntarism may turn out to be a bust."

Nevertheless, Hoecker doesn't believe FERC should automatically deny RTO status to transmission owners or their regional counterparts "just because an RTO is now a little too small, too unshapely relative to the operation of the grid, or unwilling or unable to take on every function and jump through every hoop." After all, he noted, "RTOs will grow and evolve.....And if 'scope and configuration' is not ideal in some cases, agreements on pricing and congestion management at the seams can effectively replicate a bigger market and accomplish the same thing."

In fact, "good seams' agreements and umbrella ISO arrangements that embrace multiple ITCs [independent transportation companies] may well be part of how the Commission reconciles itself to RTOs that test the lower limits of underachievement that might pass Order 2000," Hoecker said.

On the flip side, however, he noted the tendency to form smaller RTOs could be a signal of "low expectations" or a "basic unwillingness" by transmission-owning utilities to "look down the road at what the bulk power [market] will ultimately look like and to embrace the inevitable."

Ironically, Hoecker said FERC's October and January deadlines for industry to form or join RTOs could be part of the problem, causing utilities and other market participants to "underachieve and file an RTO proposal that is not 'best efforts.'" In its effort to accelerate RTO formation, "the Commission may have inadvertently handed some companies and regions a plausible way out of doing much of anything."

But he has told parties engaged in the RTO process "a solid regional plan that will plausibly lead to a regional market, filed on Oct. 15, is worth more than any half-baked, sub-optimal submittal 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 the legislature bit the bullet and pushed an ERCOT-wide ISO into existence." As a result, "the pain has been minimized and the parties are happily making the adjustment." FERC does not have jurisdiction over electric transmission in Texas.

Susan Parker

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