State attorneys general and utility regulatory commissions remain divided in their reactions to FERC’s sweeping proposal to implement a standard market design (SMD) for U.S. wholesale electricity markets.

State-level responses to the SMD plan range from pressing for the complete withdrawal of the proposal to expressing general support for SMD, but offering a series of specific changes to the proposed rulemaking, including moving away from the idea of creating independent transmission providers (ITPs).

Over the past several days, FERC has been inundated with dozens of comments filed in response to the Commission’s notice of proposed rulemaking (NOPR) for SMD issued this summer [RM01-12].

Several state commissions and attorneys general see the proposed rulemaking as undercutting states’ authority related to the regulation of electricity and creating an air of uncertainty in the power industry.

“The SMD NOPR should be withdrawn in its entirety,” the Louisiana Public Service Commission (LPSC) told FERC, asserting that the NOPR attempts to solve “problems” that do not exist. “It takes steps that exceed the FERC’s delegated authority.”

In addition, the LPSC said that the SMD proposal will harm consumers in Louisiana and the Southeast. “Any future efforts to develop a market design should be based on a reasonable and extended timetable which allows sufficient input from affected parties, including state regulators,” the LPSC told the Commission. “It should take into account and allow regional differences and regional preferences.”

The LPSC said that FERC does not have the jurisdiction or authority to regulate retail matters subject to the jurisdiction of the state commission, including regulation of bundled retail rates and services, generation resource adequacy, retail demand response or generation and transmission siting issues. “The FERC also does not have authority to require RTO [regional transmission organization] participation, nor does it have exclusive authority over transmission reliability and investment decisions.”

Washington State Attorney General Christine Gregoire also urged FERC to withdraw the SMD proposal. “The proposed rule would impose a nationwide solution on a regulated industry that does not have uniform nationwide problems,” Gregoire told the Commission.

The state attorney general said that if FERC wants to provide an economic climate in which generation and transmission facilities will be financed and built, then it should drop SMD. “In its current state, it adds uncertainty and controversy to the industry, to the detriment of utilities and their customers.”

Elsewhere, the Kentucky attorney general’s office said that it “strongly objects” to the SMD proposals included in the NOPR. “While there may be a few issues of fair competition to resolve in some regional electricity markets — and more in others — the broad brush with which the FERC paints all regions and transmission owners is unfair and usurps the legitimate authority of states to regulate the manufacture and distribution of electricity for local consumers,” the Kentucky attorney general’s office wrote.

“Under the NOPR, citizens of Kentucky will have to endure radical experiments with an essential service for the purpose of solving problems that they have, through state regulation, already managed to avoid,” the Kentucky attorney general’s office went on to say.

The Connecticut Department of Public Utility Control (DPUC) said that it cannot support the implementation of a new set of market rules that don’t provide for a just and reasonable mechanism for sharing of costs and benefits. “The Commission should solicit proposals from parties to this proceeding for cost and benefit sharing mechanisms and provide the parties to this docket an opportunity for review and comment on any proposals.”

Moreover, the DPUC said that the new set of rules proposed in the SMD NOPR should not be adopted “until such time as a mechanism is developed that provides for a just and reasonable sharing of costs/benefits/savings between adjoining regions like New York and New England where there will be an inequitable disparity if no sharing mechanism is adopted.”

In contrast, the Texas Public Utility Commission (TPUC) said that it supports most of the elements of FERC’s proposed rule. “We are convinced that for marketers to make the investments required to enter retail competition they must have access to a vibrant, sophisticated wholesale market that includes features like market-based congestion management and markets for balancing energy and ancillary services.”

At the same time, the Texas regulators voiced concerns that in proposing the SMD rule, FERC may be backtracking on requirements that it adopted in Order 2000 related to the creation of RTOs.

In particular, the TPUC took aim at the NOPR’s proposal related to the formation of ITPs. “We are concerned that allowing utilities to form independent transmission providers (either alone or in combination with other utilities) could delay the introduction of independent transmission management and independently operated markets for ancillary services and balancing energy, could frustrate regional congestion management, could allow seams problems and rate pancaking to continue and could frustrate efforts to regionalize transmission planning.”

For these reasons, the TPUC believes that ITPs would not promote effective and efficient wholesale markets to the same degree as RTOs.

In a similar vein, the Illinois Commerce Commission (ICC) said that while it generally supports the SMD NOPR, it does have concerns related to the element of the proposal dealing with ITPs. The ICC said that rather than pursue the ITP approach introduced in the NOPR as an interim step, FERC should continue to move toward “prompt and full participation” by transmission-owning utilities in properly designed and configured RTOs, as envisioned in Order 2000.

“The protracted transition to competitive wholesale electricity markets that will result from adopting an interim ITP step, rather than moving directly to RTOs, will compound costs and market uncertainties as institutions are set up and subsequently disregarded to build new institutions that satisfy the Order 2000 RTO standards.”

The SMD NOPR also drew responses from electric grid operators, think tanks and federal agencies in the past week.

For its part, the Ontario independent electricity market operator (IMO) told FERC that pre-scheduling for long-term, cross border transmission service should not be allowed under SMD.

In its NOPR, FERC asks, in the context of transmission service across state borders, whether a long-term pre-scheduling option similar to that introduced in New York is appropriate for SMD. “We recommend against such long-term pre-scheduling because it would give inappropriate priority access to transmission, but we do acknowledge there may be a need for short-term pre-scheduling,” the IMO said.

The grid operator recommended that such a need be addressed at the regional level, within the context that short-term pre-scheduling be viewed as a “temporary expedient,” pending the eventual elimination of such physical reservation as a consequence of improved market coordination mechanisms.

Meanwhile, the Progress & Freedom Foundation, a Washington, DC-based think tank, said that the NOPR “virtually amounts to centralized planning for the electricity sector.” The foundation said that the rulemaking would “radically restructure” the power industry, “placing billions of dollars worth of transmission assets under the control of non-profit, quasi-regulatory agencies.”

The think tank asserts that the NOPR is inconsistent with competition “because it leaves few economic decisions of any importance to be made by market participants without some sort of regulatory involvement and oversight.” Along with adopting a new regulatory system for transmission, the NOPR “significantly increases regulation of the wholesale power market itself,” the foundation told FERC.

In addition, the foundation believes that there is “no evidence that such a radical approach” is required. “While the Commission’s purpose is to establish a foundation for a competitive wholesale power market, the NOPR provides data showing that such a market already exists and is thriving, so that now even large vertically integrated utilities rely on wholesale power for a significant port of their energy supplies.”

Meanwhile, the U.S. Environmental Protection Agency (EPA) said that it’s concerned that the NOPR’s transmission planning policies may contain a bias in favor of new transmission projects and against non-transmission alternatives. “The transmission planning process by its very nature primarily considers new transmission facilities as a solution to reliability problems,” EPA told FERC.

EPA noted that the proposed tariff structure provides a mechanism for cost recovery for approved transmission expansion. “Non-transmission alternatives, no matter how worthy, are less likely to receive full consideration or cost recovery under this institutional framework,” EPA said. “Furthermore, the proposed SMD policies include no mechanism for considering the resource value of long-term energy efficiency investments which could reduce the need for new transmission facilities.”

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