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 , 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
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.