FERC Votes to Limit Number of RTOs to Four

In its first attempt to establish the "geographic scope" of regional transmission organizations (RTOs), the Federal Energy Regulatory Commission made clear last week that it plans to restrict the number of RTOs operating nationwide to four, with one dedicated to each region: the Northeast, Southeast, Midwest and West.

The Commission ordered the three Northeast independent system operators (ISOs) and the Southeast transmission owners to immediately participate in separate settlement discussions at FERC to create proposals for a single RTO in their regions, but it held off from ordering similar talks for the Midwest and West. The Southeast and Northeast talks are to convene in less than a week and last for 45 days, and will be mediated by FERC administrative law judges (ALJ).

The series of RTO orders that were issued Wednesday marked a "watershed in the evolution of our RTO policy," said Commissioner William Massey. "For the first time...we set a clear objective for RTO topography...geographic scope. We state this objective for these four RTOs covering virtually the entire nation," excluding Texas.

In the Northeast, FERC ALJ H. Peter Young will have the challenge of bringing together three ISOs --- New England, New York and Pennsylvania-New Jersey-Maryland (PJM) --- that "have done truly pioneering work" in the area of regionalization, he noted. Each of the ISOs had asked FERC for the go-ahead to form their own RTO, but the Commission yesterday rejected their requests.

Massey said he supported the Commission decision to use the PJM as the "platform upon which the northeastern RTO will be built." The PJM has a market design that "works."

In the Southeast, ALJ Bobbie J. McCartney's job will be to "kick start" a region that has lagged behind the rest of the country with respect to grid regionalization, Massey noted. FERC directed the members of GridSouth (Carolina Power & Light Co., Scana Corp., et al), Entergy Corp. and Southern Companies to participate in the settlement discussions to form a Southeast RTO. The members of GridFlorida and the Southwest Power Pool (SPP) were invited to attend the talks, but weren't ordered to do so.

The ALJs were directed to file reports within 10 days of the conclusion of the 45-day settlement discussions, which are to include outlines of proposals to create single northeastern and southeastern RTOs.

Although he agreed the Commission had made headway on RTO formation, Massey said he was "somewhat disappointed" that FERC hadn't applied that "same immediate resolve" in the Midwest and West. "I would direct Alliance, the Midwest ISO and the Southwest Power Pool to a mediating proceeding with the same objective and timetable as that for the northeastern and southeastern RTOs."

The settlement that FERC approved between Alliance and the Midwest ISO "was a bold step in the right direction," he acknowledged. However, he said he firmly believes that the "SPP would add even greater scope to the Midwest [RTO]."

Massey further said he had wanted the Commission to call for immediate settlement discussions with respect to an RTO in the West. "In the West, I believe RTO West provides a superb start toward a single RTO...It is a worthy anchor institution for the region."

Commissioner Linda Breathitt partially dissented from the FERC majority, saying its decision to define RTOs according to regional boundaries was a "dramatic departure" from Order 2000. As some had feared, "the magic markers have come out and the boundaries are being drawn with little regard to the status and timing of RTO formation efforts in various regions of the country," she said.

Companies have spent "many hours and countless resources in negotiations and collaborations and complicated business strategy sessions to develop reasonable RTO approaches," but the Commission's decision "could...render these efforts useless and force parties to begin the difficult and time-consuming process anew." For example, the Midwest Alliance settlement, which FERC okayed, could "unravel," Breathitt noted.

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