Hoecker reports on RTO progress

By Staff -- Purchasing, 6/1/2000

WASHINGTON-In a speech delivered last month in Washington, D.C., Federal Energy Regulatory Commission (ferc) chairman James J. Hoecker says the agency is "not absolutely certain what to expect on October 15," when-in accordance with ferc's Rule No. 2000-most transmission owners must file their plans for establishing regional transmission organizations (RTOs). "Leaving nothing to chance, however, we have committed substantial staff resources to an unprecedented collaborative effort to bring all parties in all regions to the table," Hoecker adds.

Order No. 2000 is the ferc ruling that compels transmission owners to figure out how the nation's power transmission grids will be governed-whether by for-profit companies (transcos), independent system operators, some other hybrid model, or-most likely-a patchwork of the above. The ferc wrapped up phase one of its Rule No. 2000 implementation plan this past spring, having held six regional meetings in Philadelphia, Atlanta, Las Vegas, Kansas City, Cincinnati and Portland, Ore.

Hoecker says, "Naturally, the process has its detractors," noting that some on the consumer side accuse ferc of not having the "guts necessary to forcefully implement the objectives of Order No. 2000," while people on the utility side say they've not been given sufficient time to react.

Looking to October, Hoecker says, it's impossible to say at this stage, but suggests that "volunteerism may turn out to be a bust." Should transmission owners choose to slow the process of creating working RTOs, Hoecker says, they clearly "have the leverage to do so-even though it may cost them money, market share and strategic position in the long run."

In grading the regional workshop phase of the Rule No. 2000 implementation, Hoecker gives it a "solid B," citing "no breakthroughs but frank talk for the most part and widespread commitments to continue working toward a productive conclusion." He characterizes the regional reports as "encouraging," but emphasizes that solutions look far off, at least for certain regions.

"The probable initial defects in regional market proposals are already becoming apparent," Hoecker says, adding, "If they are not effectively addressed, the Commission will be forced to reassess the viability of a voluntary approach." However, he does suggest that, with feasible proposals in hand, ferc is inclined to be lenient about the details. "Naturally, the Commission cannot take action on a mere idea or even a broad plan. But we can work with a viable proposal that contains the essential elements of an RTO, even if the legal steps required for divestiture or other purposes, the execution of lease agreements, financing, or (in some regions) legislation must come later, practically speaking."

Worst case scenario, Hoecker says, is that the ferc will "receive no valid regional proposals at all in any single region and no credible defense for that state of affairs." His fear is that rather than creating large sustainable regional bulk power markets, market participants might file unworkable proposals. "When I look at existing ISOs and the early formulations of new RTOs pursuant to our Order, I see fortresses, gerrymanders and Swiss cheese; that is to say, single-system or single-state RTOs, illogical agglomerations of territories and arrangements that may actually act to disrupt markets and exact an unacceptable toll on long-distance transmission..." Faced with such an outcome, Hoecker says the ferc "will need to find the guts to take additional action."

Bottom line, Hoecker says, is that ferc commissioners want to look at the October proposals and see, with confidence, "a clear picture of what the probable configuration of transmission assets and bulk power markets will be nationally in two to three years." To this end, he says ferc has dedicated substantial resources to mediate the process, but can not do so indefinitely.