FERC last Wednesday conditionally approved a proposal filed by ISO New England (ISO-NE) and New England transmission companies late last year to form a regional transmission organization (RTO). Among other things, the Commission directed ISO-NE and the transmission owners to conduct additional work on plans to eliminate interregional electric seams with bordering regions.

“This is a landmark event in the evolution of New England’s wholesale electricity markets,” said Gordon van Welie, president of ISO-NE. “An RTO will build on the foundation established during the first five years of competitive wholesale markets and ensure that consumers in New England continue to have the most reliable system possible and the most efficient wholesale markets.”

FERC Chairman Pat Wood said that the order “is very specific and says, here’s what we need to get to ringing the bell — getting an RTO that’s fully formed and effective and independent, which is, I think, something that we have worried about here with ISO New England.”

He went on to say that “this is a pretty mature market, but there are some structural issues that, while [they] may not be front-burner items today because things are calm, it’s important to get them right and I think that the filing parties here did get it right. We do have here what will be a truly independent RTO, not dependent on the benevolence of the transmission owners, but it’s one that starts off clean here. In recognition for that, the Commission, I think, properly passes on some of the benefits of efficient market systems to transmission owners in the 50 basis point adder that we put on the regional network facilities — although not all facilities.”

At a later point, Wood said “this is a good day — and then there were four — more to come.” FERC’s conditional approval of the New England RTO plan brings to four the number of electric grid operators that have been granted RTO status by the Commission.

The Commission previously gave RTO status to the Midwest Independent Transmission System Operator (MISO) and PJM Interconnection. Most recently, FERC last month conditionally gave RTO status to the Southwest Power Pool.

“I’m glad, actually, that in these RTO orders we’re being more specific and leaving…fewer decisions to be made later because I think that’s actually delayed development and added costs to RTO development,” FERC Commissioner Nora Brownell said. She is “particularly pleased that we’ve dealt with some of the seams issues here.”

ISO-NE and New England transmission companies jointly filed the RTO proposal at the Commission in November of last year. At the time of the filing, ISO New England said that the RTO filing would assure there is a single point of control to effectively maintain reliability and preserve the integrity of the power system on a daily basis and in emergency situations.

New England transmission owners also made a related filing seeking approval for a return on equity (ROE) they would be entitled to receive under the transmission rates that would be charged by RTO New England.

The New England transmission owners are: Bangor Hydro Electric Co., Central Maine Power Co., NSTAR Electric & Gas Corp., New England Power Co., Northeast Utilities Service Co., United Illuminating Co. and Vermont Electric Power Co.

Along with these filings, FERC’s draft order issued this week addressed the threshold legal issue of whether the RTO filing parties — ISO-NE and the New England transmission owners — were entitled under the existing agreements governing the operation of the New England Power Pool (NEPOOL) and ISO-NE to file the replacement agreements needed to establish RTO New England.

FERC determined that the applicants were permitted to make their RTO filing based on both their contractual rights under their existing pacts with NEPOOL and based on their rights as public utilities under the Federal Power Act.

“The draft order finds that, subject to conditions, RTO New England will comply with the minimum characteristics and functions applicable to RTO operations as set forth by the Commission in Order 2000,” a FERC staff member said. Specifically, the order determined that the RTO will operate independently of market participants.

At the same time, the Commission found that RTO New England’s geographic configuration and its existing and potential integration with its neighboring control areas will satisfy the scope and regional configuration requirements of Order 2000.

However, FERC determined that the applicants’ commitment to eliminating interregional seams between the New England, New York and other area markets is insufficiently developed. The Commission is requiring ISO-NE and the New England transmission owners to have on file with FERC an agreement with the New York Independent System Operator to resolve these interregional seams issues within one year of the date of a compliance filing that will have to be made by ISO-NE and the transmission owners.

Through and out service charges between New England and New York must be eliminated within six months of the date of the compliance filing.

The order also found that, subject to conditions, RTO New England will comply with the operational authority requirements included in Order 2000, given the duties and functions that will be assigned to the RTO by the New England transmission owners under a transmission operating agreement.

Pursuant to that agreement, the region’s transmission owners will agree to transfer the operational authority over their transmission facilities to RTO New England, subject to certain reserved rights including Section 205 filing rights regarding rates and rate design matters. The transmission operating agreement will also address the terms and conditions governing RTO New England’s management of the transmission owners’ facilities and provides tariff guidelines governing the establishment of independent transmission companies within the operational framework overseen by RTO New England.

The order also addressed the related filing on ROE issues applicable to transmission rates charged by the RTO. FERC set for hearing the proposed 12.8% ROE applicable in regional and local transmission rates. Consistent with decisions in prior RTO cases, the Commission allowed a 50 basis point adder for transmission used for regional service. FERC also set for hearing a proposed 100 basis point adder applicable to all future transmission expansion.

The Commission also ordered that the filing parties identify, in a subsequent filing, relevant assets that NEPOOL will continue to own after the functions and duties of ISO-NE are terminated and indicate how the facilities will be acquired from NEPOOL.

ISO-NE on Wednesday said that it intends to work with the transmission owners and other stakeholders to make the filings required by FERC, including a compliance filing within 90 days.

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