FERC, utilities move slowly on regional transmission organizations
By Daniel W. Gottlieb -- Purchasing, 1/13/2000
WASHINGTON--While nearly half the states have taken steps toward new regulatory frameworks for restructuring electricity markets, the slow pace toward formation of regional transmission organizations (RTOs) is a major barrier to sourcing competitive power supplies.The regulatory framework for RTOs--which are to be middlemen, owning and operating the transfer of power destined to end users within and among regions--is the responsibility of the Federal Energy Regulatory Commission (FERC). So far, however, this independent agency has only one RTO application before it--the Alliance, a group of five Midwestern and Eastern utilities that own 43,000 miles of transmission lines, serving 26 million people in nine states.
Fed legislation is needed
"If state programs are to realize their full potential, federal action is also necessary," says Energy Secretary Bill Richardson. "Electrons do not heed state borders--and electricity markets are becoming increasingly regional and multi-regional."
Some consumer groups and Republicans in Congress feel the Administration is moving too slowly on both the legislative and regulatory fronts, while some investor-owned utilities and the Administration feel that slow, careful progress is better for managing risk in a changing market.
"We're looking for evolution, not revolution," Richardson says. He notes, however, that federal electricity restructuring legislation is needed to give FERC the additional powers it requires to move restructuring forward. In the current climate of regulatory uncertainty, Richardson says utilities have postponed making important decisions, the result being that reserve margins in generation capacity have come under pressure in regions such as the Midwest. Unless guidelines are made clear soon, the DOE chief says we could see squeezes on supply similar to those that caused the famous Midwest price spike in summer of 1998.
Further congressional action on electricity restructuring legislation has been delayed until early next year, so, at present, the chief focus of federal electric energy policy is on FERC. Two recent actions illustrate FERC's role--
- FirstEnergy. On October 27 FERC approved a petition from the Ohio-based FirstEnergy Corp. (a member of the proposed Alliance RTO) to transfer its transmission facilities to a newly formed affiliate, American Transmission Systems Inc. (ATSI). This is an initial step toward inclusion in a larger Midwest RTO, which FERC has required the company to join, according to FERC spokesperson Barbara Connors. FERC's announcement of the approval notes that the Commission continues to consider ATSI's open access rates.
- Rulemaking on RTOs. FERC is also now reviewing initial and reply comments in its Notice of Proposed Rulemaking proceedings to define the roles of RTOs and set ground rules for them, according to Connors. These include such matters as the basis for assessing "open access" fees (what RTOs charge for electricity passing over their systems) plus business and operating procedures for RTOs. In testimony to FERC, the Edison Electric Institute (EEI)--the association of investor-owned utilities--praised the Commission for proposing "a forceful yet voluntary and consultative approach that offers incentives to achieve its objectives (formation of RTOs)." EEI argues, however, against giving RTOs full control over rates to the extent that such control would prevent utility members "from fulfilling [their] fiduciary responsibilities to shareholders." FERC is now considering the substantial volume of testimony it has received, according to Connors.
Industry wants faster action
The Electricity Consumers Resource Council (ELCON), an organization representing large industrial electricity users, is one group that says that FERC and utilities are moving too slowly on setting up RTOs.
"FERC ordered FirstEnergy to join an ISO several years ago, and it's dragged its feet on complying," says ELCON executive director John Anderson. "We think FERC is being hoodwinked," Anderson adds. "FirstEnergy certainly has been delaying action long enough."
Ellen Raines, spokesperson for FirstEnergy, denies this. "Rather than dragging our feet, I would say we have been very proactive, not only in creating the Alliance but also taking steps internally that will save us time ultimately." The company's separation of transmission assets will expedite their transfer to an RTO later, she explains.
Raines says the utility expects to hear from FERC early next year on the Alliance's application, which is "based on FERC's NOPR and its criteria for proposed standards for independence and access to energy providers."
Asked what role RTOs will have for competitive markets, ELCON's technical director, John Hughes, answers this way: "You have to have an independent operator of the transmission grid. Otherwise it's like letting United [Airlines] be the air traffic controller in Chicago." Because utilities don't have to join an RTO unless the state orders it, "no utility is really willing to agree unless it's allowed to preserve its market," Hughes adds.
EEI sees the key to utilities joining RTOs differently. In arguing for a higher return for SCE before FERC, its filing says transmission companies, in order to support regional electricity markets, "need to make substantial investments in both information systems and in infrastructure expansion." The companies will have difficulties attracting capital necessary to fund these improvements "unless returns are set at a competitive level," EEI claims.
Talkback
Related Content
Related Content
Sponsored Links
View All Blogs
Now Playing:
