The Federal Energy Regulatory Commission may be over-reaching in trying to hone regional transmission organizations (RTO) down to “four plus one (ERCOT),” according to congressmen and witnesses before the House Energy and Air Quality subcommittee Wednesday.

Four RTOs is a “good number, but it’s not the only number out there,” Chairman Joe Barton (R-TX) said during his opening remarks to a subcommittee hearing on electricity restructuring. “There’s no magic about having three RTOs in the eastern interconnect and one in the western interconnect.”

Barton noted that he has issued a revised discussion draft on the RTO portion of the subcommittee’s electricity restructuring legislation, which he says hits a “middle ground” between awarding FERC too much authority to mandate utility participation in RTOs, and not giving it enough. The chairman’s latest draft would require FERC to approve RTO applications that satisfy certain minimum standards, and would allow the agency to propose changes to applications that do not meet those standards. If there is no agreement between parties, FERC then could order a utility’s participation in an RTO, but the utility could appeal that decision to a federal court, according to Barton.

Responding to congressmen’s questions as to whether 40,000 MW would be a good number for a minimum RTO size, Peter Esposito, Dynegy vice president, pointed out that would allow California to form an RTO by itself. He suggested a bigger number, although he pointed out that megawatt size might not be the best measure, since different sizes might be suitable for different areas.

Allen H. Franklin, president of Southern Co., argued against forcing the whole southeastern area into one RTO. FERC’s July order to that effect “was not helpful. In the Southeast every IOU and public power group has been working to form RTOs. We didn’t need a bigger hammer.” In fact, Franklin said, the FERC order has delayed, rather than speeded up the RTO formation process. “This was not the size that was being pursued,” and the order “has thrown the negotiating process into turmoil.”

Franklin said a great deal of work had been done to get the various state governments on board the RTO bandwagon, but “you can’t get them on board with a heavy hammer.” Southern has 95% of its income regulated by four states. If the RTOs don’t work “and we don’t have the state commissions on board, it will be a disaster. Southern will be punished financially, just like the companies in California have been punished.” He also suggested that it might make more sense to go ahead with smaller RTOs first, doing it in such a way that they could be amalgamated later. The smaller systems could be operational sooner, and if you start with one large system and it doesn’t work, “you can’t go the other way,” Franklin said. While groups in the Southeast had been on track to meet Order 2000’s end of the year deadline, “recent developments have knocked the negotiations off course.” The vast majority of public power in the Southeast has been alienated and the deadline now “doesn’t seem feasible at all.”

In addition the Southern Co. executive saw problems with a large RTO with a uniform price for transmission anywhere on the system. It results in “generation being built by the boatloads down along the Gulf Coast where natural gas is located, and shipped to Atlanta, and Charlotte and up the East Coast.” There’s no incentive to build generation close to load. “It makes the system less reliable, because you have massive power flows and the greater the power flow, the more bottlenecks and reliability problems are created.”

There is also additional cost for transmission. Franklin added there was “way too much generation being built in the Southeast.” Franklin suggested there be some formulas for distance-sensitive pricing, noting that FERC approves distance-sensitive pricing for natural gas.

(Responding to Franklin in FERC’s open meeting a day later, Chairman Pat Wood said he was aware of the problem involved in having mileage sensitive gas pipeline rates and postage stamp power transmission rates, and was open to suggestions as to how to solve it. Wood said he was concerned that distance sensitive rates for power “are going to shrink the accessible market on an economic basis.” That leads to market power concerns. He said ERCOT adopted the single rate so that generation would be available equally to anyone in the pool. He acknowledged, however, that siting generation close to a fuel source could increase congestion on transmission lines and consequently transmission costs. He suggested there may be other ways, for instance in congestion management charges, of capturing those costs besides the fixed transmission rates.)

(Wood also responded to questions from reporters after the FERC meeting about Franklin’s claim that FERC’s recent RTO order had slowed the negotiation process for a Southeastern RTO, questioning whether there had been any progress anyway up to that point. Commissioner Nora Brownell also commented that she knew of others in the Southeast who were making progress on an RTO. Wood acknowledged it was unlikely many RTOs would make the Dec. 15 due date, saying the one he expected to come closest with a completed plan was the Midwest ISO.)

Congressional committee members asked Franklin and others on the panel to submit proposed arguments and formulas for distance-sensitive pricing. There is also the cost involved in setting up a very large control center, and the trade-offs in added bureaucracy and decisions made far from where their impact will be felt. Even though California spent $600 million to set up its centralized grid, Franklin estimated it shouldn’t cost much more than $100 million to set up a control center.

“It’s my personal belief that all utilities should be in an RTO,” Barton said. “I believe that if all utilities are in an RTO, and RTOs work well within themselves and with other RTOs, we will have greatly helped to establish a seamless national network.”

While the time is growing short in this legislative session, Barton still remains somewhat optimistic that electricity restructuring is doable in the near term. If Congress adjourns “very quickly,” he concedes the House subcommittee will then have to roll over its bill to next spring. But “there’s also a possibility…we could move to mark-up on this bill in this Congress in the next month or so.”

On other issues in the draft bill, Barton said he believes Congress and FERC should do what they can to encourage expansion of transmission capacity where needed through private sector investment. Moreover, he favors states continuing their traditional role of siting transmission facilities, but that the federal government should impose a deadline on the states for timely consideration of lines that are in the public interest.

The open-access aspect of the draft bill would “make sure all who depend upon transmission lines to sell power…or to purchase wholesale power for their consumers can gain the proper access to bulk transmission” facilities, Barton said during the hearing.

As to the issue of who should have jurisdiction over the transmission component of “bundled sales” — FERC or the states — he said that Congress should “step in and provide clarity to the law” on this issue.

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