FERC took a major step Wednesday towards regional operation ofthe electric transmission grid by issuing a notice of proposedrulemaking (NOPR) that seeks to promote the formation of regionaltransmission organizations (RTOs) nationwide.
By 5-0, the Commission voted out a proposal that seeks toencourage public transmission-owning utilities – as well 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 are impeding competition, such as congestionmanagement, pancaked ratemaking and reliability problems. The movetowards 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 inRTOs, but some believe it comes pretty close to that. CommissionerVicky Bailey referred to a possible “lurking phantom menace” of animplied mandate in the proposed rule, while Commissioner WilliamMassey said the “tone of this document,” as well as its “textureand content,” make it “clear that the Commission intends for an RTOto form in every appropriate region of the country.” He added theproposed rule was “by no stretch neutral” on this score.
But Hoecker rejected any reference to a mandate – implied orotherwise. 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 thedestination will look like exactly.” He said the proposed rulesimply provides the signposts for electric utilities to movetowards more efficient regional 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 spelled out in the proposed rulemaking.
With respect to the characteristics, the Commission says RTOsmust be independent of market participants, regional in size andscope, have total operational control of the transmissionfacilities in their region, and have exclusive operationalauthority for maintaining reliability. As for RTO functions, theseshould include tariff administration and design, congestionmanagement, parallel path flow, ancillary services, OASIS andcalculation of total and available transfer capability, marketmonitoring, and planning and expansion. FERC noted that the RTOrequirements would greatly reduce the need for regulatory oversightof the power grid.
Although the NOPR requires RTOs to satisfy all of thecharacteristics and functions, it does give utilities the latitudeto propose alternatives for complying with six of the functions andit gives some additional time for utilities to comply with threefunctions. Furthermore, FERC noted the characteristics andfunctions were crafted to accommodate all types of RTOs, includingISOs, transcos, combined ISO-transco entities and alternatives.And, the proposed standards “do not invalidate any of the alreadyapproved ISOs or compel rejection of other recently proposedregional model[s],” Bailey said. They also would allow for bothprofit and non-profit RTOs.
To encourage the formation of RTOs, Commissioner Curt Hebertsaid FERC will consider performance-based rates for fullyoperational groups and other rate incentives, such as increases inrates of return on equity for utilities incurring increased risksin transferring to RTOs, acquisition adjustments for utilitiesbuying facilities to form or expand RTOs, incremental pricing forexpansion of the grid by utilities joining RTOs, flexible treatmentfor depreciation if necessary to form RTOs, and the opportunity tooffset gains from sales against stranded costs.
The NOPR proposes that all public utilities that own, operate orcontrol interstate transmission facilities file with FERC by Oct.15, 2000 plans to join or form an RTO, or submit alternativefilings that describe efforts made to join an RTO and/or thereasons (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 andperhaps unrealistic.”
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