FERC Gives Major Push to Electric Utility RTOs
FERC took a major step Wednesday towards regional operation of
the electric transmission grid by issuing a notice of proposed
rulemaking (NOPR) that seeks to promote the formation of regional
transmission organizations (RTOs) nationwide.
By 5-0, the Commission voted out a proposal that seeks to
encourage public transmission-owning utilities - as well non-public
municipal and cooperative power groups - to either voluntarily join
or form RTOs in an effort to resolve a number of second-generation
Order 888 issues that are impeding competition, such as congestion
management, pancaked ratemaking and reliability problems. The move
towards RTOs on a widespread basis could save end-use customers
"billions of dollars annually," said Chairman James Hoecker.
FERC stressed the NOPR doesn't mandate utility participation in
RTOs, but some believe it comes pretty close to that. Commissioner
Vicky Bailey referred to a possible "lurking phantom menace" of an
implied mandate in the proposed rule, while Commissioner William
Massey said the "tone of this document," as well as its "texture
and content," make it "clear that the Commission intends for an RTO
to form in every appropriate region of the country." He added the
proposed rule was "by no stretch neutral" on this score.
But Hoecker rejected any reference to a mandate - implied or
otherwise. Although the NOPR is "based on clear rules of the road,"
he said "public utilities are not being told what road to take,
they're not being told what car to drive or even what the
destination will look like exactly." He said the proposed rule
simply provides the signposts for electric utilities to move
towards more efficient regional bulk power markets.
Under the RTO concept, transmission-owning utilities would turn
over the operation and control of their transmission facilities to
either independent system operators (ISOs), transcos, combined
ISO-transco entities or "anything else" that meets the eleven
minimum "characteristics and functions" for RTOs that the
Commission spelled out in the proposed rulemaking.
With respect to the characteristics, the Commission says RTOs
must be independent of market participants, regional in size and
scope, have total operational control of the transmission
facilities in their region, and have exclusive operational
authority for maintaining reliability. As for RTO functions, these
should include tariff administration and design, congestion
management, parallel path flow, ancillary services, OASIS and
calculation of total and available transfer capability, market
monitoring, and planning and expansion. FERC noted that the RTO
requirements would greatly reduce the need for regulatory oversight
of the power grid.
Although the NOPR requires RTOs to satisfy all of the
characteristics and functions, it does give utilities the latitude
to propose alternatives for complying with six of the functions and
it gives some additional time for utilities to comply with three
functions. Furthermore, FERC noted the characteristics and
functions were crafted to accommodate all types of RTOs, including
ISOs, transcos, combined ISO-transco entities and alternatives.
And, the proposed standards "do not invalidate any of the already
approved ISOs or compel rejection of other recently proposed
regional model[s]," Bailey said. They also would allow for both
profit and non-profit RTOs.
To encourage the formation of RTOs, Commissioner Curt Hebert
said FERC will consider performance-based rates for fully
operational groups and other rate incentives, such as increases in
rates of return on equity for utilities incurring increased risks
in transferring to RTOs, acquisition adjustments for utilities
buying facilities to form or expand RTOs, incremental pricing for
expansion of the grid by utilities joining RTOs, flexible treatment
for depreciation if necessary to form RTOs, and the opportunity to
offset gains from sales against stranded costs.
The NOPR proposes that all public utilities that own, operate or
control interstate transmission facilities file with FERC by Oct.
15, 2000 plans to join or form an RTO, or submit alternative
filings that describe efforts made to join an RTO and/or the
reasons (obstacles) for remaining outside an RTO structure.
Existing RTOs that satisfy the 11 principles would have until Jan.
15, 2001 to file. Hebert called the deadlines "ambitious and