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'Marginal' RTO Plans Being Filed to Defer Competition
FERC Chairman James J. Hoecker indicated last week that transmission-owning utilities are intentionally submitting sub-par compliance filings in response to the Commission's regional transmission organization (RTO) rule to delay the onslaught of full competition in the bulk power market for as long as possible.
FERC "is more than cognizant of efforts to resist or delay change in the coming of competitive electricity markets.....There is a predictable tendency among transmission owners to lower the threshold over which they must climb to enter the new world of bulk power competition. So we're seeing a series of RTO filings that have incremental, marginal changes and improvements, and requests for virtual indemnification against the risks of the competitive marketplace," he said at last Wednesday's regular Commission meeting.
"...[H]opefully transmission owners will recognize that this approach cannot long sustain itself. It may, in fact, hurt [their] shareholders, it may hurt reliability," Hoecker warned.
The Commission sent the RTO-related compliance filings of the Alliance Companies and the Southwest Power Pool Inc. (SPP) back to the applicants last week, telling them to "pick up their pencils and go back to the drawing board on many of [the] issues." The RTO rule, Order 2000, that was issued last December called for utilities to either join or create regional RTO groups, which would oversee the operational control of utility members' transmission assets in a competitive market.
The Alliance Companies include the public utility affiliates of American Electric Power Service Corp. and FirstEnergy Corp., as well as Consumers Energy, Detroit Edison and Virginia Electric and Power Co. The companies serve more than 26 million customers in nine states. SPP is a non-profit corporation operated by Central and South West Corp., Kansas City Power & Light, Western Resources Inc. and many others. Its members provide power to customers in eight states ranging from Mississippi to New Mexico.
The Commission majority said the Alliance compliance filing for a for-profit transco had failed to meet the independence standard for RTOs. Also, the utility companies had not yet resolved certain issues involving pancake rates and the scope and configuration of the RTO.
The most controversial aspect of the Alliance filing would award the class of five utility companies a combined 25% active ownership in the RTO. "There's a lack, I think, of a meaningful response to our concerns about [this level of] ownership. The potential for control by [the] transmission owners as a class is palpable, and I for one.....am not persuaded that they could not exercise that control," said Hoecker.
But Commissioner Curt Hebert Jr. didn't believe that a 25% voting stock level would give the Alliance utility companies "effective control" over the RTO. "I fail to understand how a 5% individual share --- the amount Order 2000 called a safe harbor --- changes into control when accumulated in a group of five.".
He conceded he voted in Order 2000 to limit class ownership to 15%. But Hebert argued that the RTO rule referred to the 15% level as a "benchmark that required us to make case-specific determinations."
Limiting class ownership across-the-board to 15% "would stifle RTO expansion," Hebert warned. "I suggest this shortsighted view will be come a self-fulfilling prophecy of doom" for RTO groups.
On the issue of scope and configuration, Commissioner William Massey said the proposed Alliance RTO would "isolate PJM on the East from utilities west of Alliance, and [would] perpetuate the existing situation where the Alliance Companies separate buyers and sellers that constitute the predominant West-to-East trading patterns."
The Alliance filing indicated the five utility companies were trying to resolve "seams" (coordination) issues with their neighboring control areas. "I'm very skeptical that 'seams' agreements with neighboring control areas will be capable [of addressing] all the inadequacies" associated with the scope and configuration of Alliance's proposed RTO, Massey said. If seams' agreements alone were sufficient, he noted there would be no need for RTOs.
"One avenue the Alliance Companies can pursue is the path charted by Commonwealth [Edison]," which has proposed forming an independent transmission company (ITC) that would operate within the Midwest independent system operator (ISO). "I encourage Alliance to consider this," Massey said.
The Southwest Power Pool (SPP) proposal for an RTO also was "woefully inadequate," falling short on a number of FERC standards, he noted. For example, it failed to turn over operational control of its members' transmission facilities to the RTO, and there were concerns about its proposed governance structure.
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