The board of directors for ISO New England (ISO-NE) and the New York Independent System Operator (NYISO) on Friday mutually agreed to withdraw their joint petition filed at FERC that proposed the creation of a Northeast regional transmission organization (NERTO) for the seven-state northeastern region.

“Today, ISO-NE and the NYISO have reluctantly withdrawn their NERTO proposal with FERC,” said ISO-NE CEO Gordon van Welie. He said that the decision was made after “careful consideration” of comments filed at the Federal Energy Regulatory Commission, the change in schedule at the Commission for the issuance of its standard market design (SMD) final rule “and the great uncertainty of potential litigation even if the merger is approved.”

Van Welie said that “it is clear that the market participants want us to focus on development of SMD and resolving seams issues between our control areas. Removing the uncertainty created by the merger will only help us in these efforts.”

“We still believe a natural marketplace exists between the two regions,” said NYISO CEO William Museler. “As both organizations work aggressively to become SMD compliant, we will continue to work collaboratively on a number of issues of critical importance, including elimination [of] market ‘seams’ and working with our Canadian counterparts to further improve the Northeast electricity markets.” Museler added that the “strong working relationship” developed between the two grid operators over the past several months “will help us achieve these goals and realize the full benefits of industry restructuring for both regions.”

The NYISO and ISO-NE will continue discussions with their stakeholders on next steps.

The grid operators in January executed an agreement to develop a common electricity marketplace for their adjacent regions based on a common market design and to jointly evaluate the feasibility of creating a NERTO. The boards of ISO-NE and the NYISO in June approved the filing of a joint NERTO proposal at FERC, which was subsequently filed at the Commission in August.

But the proposal drew heavy criticism from officials in New England who were bent out of shape over several aspects of the proposed combination. Perhaps most troubling to New England officials were concerns that the merger would mean that lower-cost power in the region would be peeled off to feed the increasing demands of New York City.

The Connecticut Department of Public Utility Control (DPUC) this month pointed out that according to a cost-benefit study filed with the ISO- NE petition, the base case for 2005 estimated costs of $62 million for New England and savings of $282 million for New York resulting from increased interregional trading after the merger. “Any long-term benefits for New England are minuscule and speculative,” the DPUC asserted. In the 2010 base case, New York was expected to benefit with savings of $147 million compared to $3 million in savings for New England, according to the DPUC.

Meanwhile, the New York Public Service Commission (PSC) said that since the benefits offered by a NERTO would be largely available through FERC’s ongoing SMD proposal, the Commission would only be creating a “costly diversion” were it to approve the creation of the NERTO. “In our judgement, the benefits claimed for the NERTO can be realized, with far less cost, by the adoption of the standard market design that the Commission is considering in a separate proceeding,” the PSC told FERC in its Nov. 8 filing.

FERC in recent months has issued several decisions advancing RTO proposals covering the West, Pacific Northwest and the Southeast in response to applications filed by sponsors of RTO West, WestConnect and SeTrans. The Commission gave RTO status to the Midwest Independent Transmission System Operator in December of last year.

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