FERC earlier this week reaffirmed “almost without exception” allof the “basic policy calls” that it made in its landmark Order2000, which seeks to have regional electric transmissionorganizations (RTOs) up and running in every region of the nationby the end of 2001.

By 4-0, the Commission on rehearing approved some tweaking —clarifications and revisions — to the final rule that encouragespublic transmission-owning utilities, as well as non-publicmunicipal and cooperative power groups, to either voluntarily joinor form RTOs in an effort to resolve a number of second-generationOrder 888 issues that still are impeding competition in the bulkpower market.

FERC moved quickly on the rehearing order “to provide certaintyso that RTO collaborative meetings around the country don’t becomedebates about Order 2000, but [are] instead practical discussionsabout how to implement RTOs,” said Chairman James Hoecker.

With the rule behind it, the Commission plans to kick off aseries of workshops next week in which staff will meet with avariety of affected parties to develop RTOs. The workshops will bein Erlanger, KY, (March 1-2); Philadelphia, PA, (March 15-16); LasVegas, NV, (March 23-24); Kansas City, MO, (March 29-30); andCollege Park, GA, (April 6-7).

Hoecker said he’s already hearing “good news” about thedevelopment of RTOs in the West, Midwest and in Florida. “…..WhatI think comes through clearly is that the time has come torefashion the structure of the bulk power markets.”

Under the RTO concept, transmission-owning utilities would turnover the operation and control of their transmission facilities toeither independent system operators (ISOs), transcos, combinedISO-transco entities or “anything else” that meets the elevenminimum “characteristics and functions” for RTOs that theCommission has spelled out.

In a related order, FERC kept its promise to be open to novelkinds of RTO structures. The entire Commission reacted favorably tothe concept of a binary RTO, under which Commonwealth Edison andother Midwest utilities would form an independent transmissioncompany (ITC) that would operate within the confines of theexisting Midwest ISO. Under this structure, the “characteristicsand functions” of an RTO would be met jointly by the Midwest ISOand the ITC [ER00-448, EL00-25].

“It’s too early to give a sign-off to this proposal,” saidHoecker, adding that even the utilities themselves concede theirproposal is “fairly incomplete” at this stage. For now, “we [will]provide guidance on the concepts that play in this filling, and askfor petitioners to fill in the blanks when they make their actualRTO [proposal],” noted Commissioner William Massey.

On rehearing of Order 2000, the Commission reaffirmed itsoriginal decision to limit in “scope and duration” the activeownership of RTOs by market participants. A market participant’sactive ownership share in an RTO remains at 5% of outstandingstock. A target limit for a “class” of active owners who are marketparticipants is 25%. FERC has indicated the limit could be higheror lower, depending on how widely the rest of the ownership isdispersed and the power of the shareholders.

The Commission believes the active ownership limits strike the”appropriate balance” between the interests of affected parties andFERC’s policy objective to form and maintain truly independentRTOs.

FERC rejected requests to phase out or limit passive ownershipof the regional groups. “We continue to believe that allowingflexibility in passive ownership arrangements could significantlyenhance our goal of accelerated formation of RTOs,” saidCommissioner Linda Breathitt. Passive owners of RTOs are permittedto have larger shares than “active” owners if they are operatingthrough a blind trust or some other mechanism that would allow themno power to influence decisions made by the RTO operators.

On rehearing, FERC’s requirement that RTOs undergo audits twoyears after being approved to ensure their independence has been”written into the regulatory text,” Massey said. “I believe this isa very important protection for the independence of the RTOs, and Iam very pleased that it has been elevated to the regulatory text.”

In addition to maintaining their independence, FERC will requireRTOs to be regional in size and scope, have total operationalcontrol of the transmission facilities in its region, and haveexclusive operation authority for maintaining reliability. As foran RTO’s functions, these would include tariff administration anddesign, congestion management, parallel path flow, ancillaryservices, OASIS and calculation of total and available transfercapability, market monitoring, and planning and expansion. FERChopes RTOs will greatly reduce the need for federal regulatoryoversight of the power grid.

While Order 2000, which was approved in December, said RTOcompliance filings should explain the efforts that are made toinclude public power entities in RTOs, FERC on rehearing said italso will require explanations of efforts to include electriccooperatives in the regional groups.

“This is, of course, the right thing to do. There must be aplace at the RTO table for public power and electric cooperatives.In fact, we now also invite non-public entities to make RTOcompliance filings [by next] Oct. 15. We want to hear theirconcerns and even their RTO proposals for their regions,” saidMassey. That’s the deadline FERC has set for transmission-owningutilities and other market participants to file plans to join orform RTOs, or submit alternative filings that describe efforts madeto join an RTO and/or reasons for remaining outside an RTOstructure. The Commission’s goal is to have RTOs formed andoperating in every region of the nation by Dec. 15, 2001.

The Commission also upheld its original decision to divideSection 205 rate filings rights between RTOs and the transmissionowners, whose facilities would be used by the RTOs. The Commissionawarded individual transmission owners, whose facilities are usedby an RTO, the right to make filings establishing their revenuerequirement and level of payment for the use of their facilities.

FERC took this route to “balance two legitimate concerns” —one being RTOs, which in order to provide transmission servicesindependent of market participants, must have full control overtheir tariff, and secondly to ensure a fair return on utilities’transmission assets that are to be used by RTOs, Breathitt said.

Also, Massey noted the final order confirms thatperformance-based rates (PBR) may be appropriate for RTOs, but theregional group itself must propose them.

Furthermore, the final rule reaffirms that the RTO has theauthority to review and approve interconnection requests, Masseysaid.

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