With Order 2000, FERC pushes electric utilities to form RTOs
By Staff -- Purchasing, 2/10/2000
The Federal Energy Regulatory Commission (FERC) issued in mid-December its final ruling on regional transmission organizations (RTOs). Billed by FERC as a "landmark move," Order Number 2000 gives transmission owners deadlines for joining RTOs voluntarily. But while keeping RTO participation voluntary, the commission underscores its legal authority under the Federal Power Act (FPA) "to remedy undue discrimination or the exercise of market power, including the remedy of requiring RTO participation where supported in the record."Order 2000 requires public utilities that own, operate or control interstate transmission to file--by October 15, 2000--either finished RTO proposals or descriptions of efforts they've made to participate in RTOs plus reasons for not participating and plans for additional work toward participation. The RTOs will be operational by December 15, 2001.
According to the rule, all RTOs must embrace four core characteristics (independence, scope and regional configuration, operational authority, and short-term reliability) and eight key functions (tariff administration and design, congestion management, parallel path flows, ancillary services, oasis, market monitoring, planning and expansion, and interregional coordination).
According to FERC, Order 2000 "adopts a flexible approach that permits a number of different types of RTOs to come into being--including non-profit independent system operators (ISOs) and for-profit transmission companies (transcos), combinations of the two, or other approaches as yet to be determined." FERC notes also that Order 2000 includes provisions that will allow RTOs to "evolve over time", improving their structures, geographic scope, market support and operations to meet market needs.
Positive reaction
On all fronts, reactions to Order 2000 might be seen as cautiously positive.
In advance of a detailed analysis, Lynne Church, executive director of the pro-competition Electric Power Supply Association (EPSA) remarked that "FERC obviously recognizes the need to have clearly defined and independent regional governance of the transmission grid, with uniform functions and characteristics, while simultaneously guaranteeing flexibility with regard to how that governance is achieved. We're also encouraged by the fact that FERC clearly recognizes its authority to take more forceful action if transmission-owning utilities fail to respond to the needs of a dramatically changing, competitive marketplace."
The Edison Electric Institute (EEI), representing investor-owned utilities, "applauded the general outline of the final rule on RTOs, particularly welcoming the commission's continued support for a voluntary flexible approach to RTO formation." An EEI representative said, "We're pleased that FERC's final RTO rule rejects a one-size-fits-all solution, opting instead to give market participants room to innovate by employing a variety of RTO structures and forms that can meet varying regional needs. We are also pleased with the opportunities provided by the rule to participate in a range of incentives that will encourage voluntary grid regionalization." (Since then, however, EEI has called for a rehearing on the Rule, citing 18 "errors.")
Speaking for large industrial electricity consumers, John Anderson, executive director of the Electricity Consumers Resource Council (ELCON), said, "Order 2000, particularly when analyzed in conjunction with FERC's Decision in the Alliance RTO application, represents a very positive stance on some key RTO issues for industrial electricity consumers (and, I believe, for all consumers)." Anderson notes that FERC took "strong, market-oriented positions on three key principles of the Alliance proposal: (1) independence, (2) scope and configuration and (3) rate pancaking...FERC states that its approval is conditioned upon the Alliance Companies making significant revisions directed in the order."
Anderson says he is pleased that Order 2000 recognizes the "potentially significant benefits" of RTOs including:
- Reduction in discrimination.
- Price transparency.
- Increased efficiency in grid management.
- Elimination of rate pancaking.
- Improved congestion management.
- More accurate calculation of available transmission capacity (ATC).
- More efficient management of loop flows.
- More efficient planning for generation and transmission and reduced transaction costs.
Still, he says there are some "not-so-good provisions" in Order 2000 as well. For example, he says, "FERC seems hesitant (at best) to use its existing legal authorities to order the creation of RTOs. Rather, FERC decided to rely on a voluntary approach with strong encouragement (incentives, if not bribes)."
Despite his reservations, Anderson says ELCON is "cautiously optimistic that many within the broad umbrella of FERC are on the right track" especially in context of the Alliance Order. "The real test will be in future FERC decisions on actual filings."
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