FERC’s “Christmas gift to the nation,” according to Chairman Pat Wood, was its approval of the first regional power transmission organization (RTO), covering basically half of the nation from North Carolina to North Dakota and as far south as Texas and Arkansas. The decision was lauded by consumer advocates and business organizations in the Midwest as a “positive first step to ensuring that the Midwest serves as an efficient and effective gateway for suppliers’ energy.”

The new RTO will be created by the Midwest Independent System Operator (MISO) and if constructed as intended by FERC will include the transmission systems of 20 states and Manitoba, Canada. MISO’s plan “most fully complies with the vision and requirements of Order 2000, in particular, the requirement that an RTO be of sufficient scope,” FERC said.

The Commission rejected the proposal of the Alliance Companies to form a separate regional transmission organization in the Midwest but urged Alliance to join the MISO in the formation of a larger single transmission entity. Companies involved with Alliance include Ameren, American Electric Power, Commonwealth Edison, Dayton Power & Light, Dominion Virginia Power, FirstEnergy, Dynegy and NiSource.

This is “what this Commission ought to be doing,” said Chairman Wood. “We have brought order out of an array of various asundry efforts in the middle part of the country.”

The five draft orders take the following specific steps: 1) approve the Midwest ISO as an RTO; 2) approve [Detroit Edison’s] International Transmission Co.’s request to transfer operational control of its transmission facilities to Midwest ISO and accept and agreement between International Transmission and Midwest ISO that would allow International Transmission to be an independent transmission company that would share certain transmission RTO functions with the Midwest ISO; 3) preliminarily approve the disposition of International Transmission’s transmission facilities to an unaffiliated entity with no ownership interest…thus facilitating a stand alone transmission company under the Midwest ISO umbrella; 4) conclude that Alliance Companies, which filed for approval as a separate RTO lacks sufficient scope to exist as a stand alone RTO — but the draft order directs Alliance Companies to explore how their business plan can be accommodated within the Midwest ISO; and 5) grant National Grid’s request for a declaratory order that it is not a market participant and dismiss without prejudice Alliance Company’s business plan.

Commissioner Linda Breathitt, who issued a dissent in the Alliance draft order, said the Commission’s decision on Alliance throws two and a half years of work out the window and will lead to as much as $135 million in stranded costs, at least a portion of which will have to be paid by consumers.

“Today’s order abruptly changes the landscape in the Midwest by concluding that Alliance lacks sufficient scope to exist as a stand alone RTO and by directing the Alliance Companies to explore how their business plan can be accommodated within the Midwest RTO,” said Breathitt. “I believe that Alliance has worked in good faith to satisfy the characteristics and functions established in Order 2000,” Breathitt said, adding that Alliance has spent $75 million in start-up costs. “That’s not pocket change and that doesn’t include their legal and regulatory expenses. At the issuance of this order, these dollars will become stranded costs to be borne in part by ratepayers in the Midwest.”

She said this is an “action of major consequence…and it is one I am not ready to take. I cannot in good conscience now say that those two and a half years of votes meant nothing and throw them out the window.” FERC already had substantially approved the Alliance Transco through a series of orders, including conditional approvals on Dec. 20, 1999; May 18, 2000; Jan. 24, 2001; May 8, 2001; and July 12, 2001. National Grid was set to become the Alliance RTO’s manager (see Power Market Today, Nov. 5 ), overseeing 51,400 miles of transmission in 11 states stretching from Missouri to Virginia.

Breathitt said she favored moving forward with an agreement between Alliance and the Midwest ISO that would allow the two to function as one market. Such a plan was recommended by regulators in Ohio and Illinois. She also noted that FERC previously had allowed three Illinois utilities to leave the Midwest ISO and join Alliance “at a cost of $60 million. You add the $75 million to $60 million and the cost [of this order] is significant.”

She also said she shared the concerns of Illinois regulators that the Commission’s decisions would cause more months of delays and additional costs to form a single RTO. “It is counterproductive to require a single RTO in the Midwest after both the Midwest ISO and Alliance have invested so much in developing their separate operations.”

Chairman Wood told Commissioner Breathitt that completely eliminating market divisions was better than allowing agreements to “paper over them.”

“That seam [or transmission boundary line between the Midwest ISO and Alliance systems] when you look at the map looks a lot like a drawing by my two year old; it’s not a straight line or a very short seam; it’s a very Byzantine line that, I think, would have a lasting impact if we don’t do something on Day One rather than just paper it over.

“I look forward to Alliance’s hopefully positive response to incorporate the bulk of what they have spent money on,” said Wood. “I don’t accept that [that money is] stranded today; they are stranded whenever it looks like they don’t work. If there is the potential to use — within the Midwest ISO’s umbrella — for example, software or other issues that have not been developed yet [by MISO] but that Alliance has developed, I would hope that kind of discussion could happen.”

Despite her extensive reservations, Breathitt agreed that forming the nation’s first RTO was a good thing. “The Midwest RTO and Detroit Edison’s ITC are the positives coming from this group of orders,” she said.

MISO is the largest independent transmission system operator in the nation and is comprised of 14 electric utility companies covering more than 240,000 miles in 14 Midwestern states. Based in central Indiana, MISO has functional control of 73,000 miles of transmission lines carrying up to 81,000 MW or power. Adding the Alliance Companies to MISO would create a system with 124,400 miles of transmission lines connecting 22 electric utility companies.

Wood noted approving a stand alone transmission-only company is a “first” for the commission. “It sets a great standard that a gridco, wiresco, transco… or independent transmission company is not only possible but very welcome. I think it solves a lot of issues [and shows] that it can function in markets that work with a transmission business plan that will attract capital. It’s very important to have that in light of what’s happened in the past two weeks. Unfortunately the cloak has been thrown over even transmission investments so we need to make sure that there are good vehicles out there, and I think today’s order in that regard sends it forth.”

The Commission’s decision won high praise from midwestern customer groups and consumer advocates, who concluded it would “spark the development of a competitive regional power market.”

“A single transmission organization in our region is important to the further development of choices that benefit consumers,” said Ohio’s Consumers’ Counsel, Robert S. Tongren, a member in the Midwest Transmission Stakeholders Group (MTSG), an ad hoc group of state consumer advocates, transmission-dependent utilities, environmental groups and business organizations whose goal is the development of a single RTO in the Midwest.

“Electric choice for residential consumers in our state has been slow to develop, ” said Tongren. “This order is a positive first step to ensuring that the Midwest serves as an efficient and effective gateway for suppliers’ energy.”

Sam Randazzo, representing the Coalition of Midwest Transmission Customers (CMTC) and the Industrial Energy Users-Ohio (IEU-Ohio) in MTSG, said, “Coordination so critical to system reliability and Ohio’s business and industry can now proceed on a timeline that should allow the Midwest to avoid a repetition of problems we saw a couple of summers ago.”

Terry Black, a representative of regional public interest organizations, added that FERC’s recent orders on market-based pricing authority cover yet another important element in developing a mature, functioning wholesale market.

“Only in a mature market will the competitive balance actually be strong enough to serve the public interest…to ensure that reliable supplies and reasonable prices prevail. We still have a number of large power suppliers that can control the market, and whose economic ambitions can cripple electricity supply and delivery arrangements,” said Black. “FERC’s Nov. 20 orders preventing several utilities from using their market-pricing authority in areas where they have market power is as critical to nurturing an effective market as this week’s order for a single Midwest RTO,” Black said. “FERC is obviously interested in seeing that the public interest is truly served as electricity markets transition to competition.”

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