FERC issues RTO proposal
By Staff -- Purchasing, 7/15/1999
In late spring, the Federal Energy Regulatory Commission (ferc) issued a notice of proposed rulemaking (nopr) on Regional Transmission Organizations (RTOs). Three things the nopr does not do:- Mandate RTO participation. "We are not proposing to mandate that utilities participate in a regional transmission institution by a certain date. Instead, we are acting now to ensure that they consider doing so in good faith."
- Establish a preferred RTO template (independent system operator, trans-co, or other). "The Commission...does not propose to establish a mandatory national template for RTOs. Such a policy would be ill advised at this time. Neither this Commission nor, we suspect, anyone else in the industry knows now what is the best combination of ownership and control to achieve an optimal RTO. Given the lack of experience to date, the Commission believes that the best policy is to encourage regional experimentation."
- Define geographic boundaries for RTOs. "The proposed rule does not set boundaries. Instead, we propose factors for assessing whether a proposed RTO's geographic configuration will ensure that the required RTO functions, such as assuring reliability, internalizing loop flow, managing congestion, and eliminating pancaked rates, are satisfied. In other words, we are proposing that the boundaries and other factors affecting scope and regional configuration will depend on the functions that an RTO performs. We note, however, that some RTO functions are likely to be carried out more effectively in a large region."
Instead of mandating RTO participation, the ferc's proposed rulemaking would create incentives (as yet unspecified) to encourage voluntary RTO participation and filings. Providing a hint as to what such incentives might look like, the nopr document mentions "willingness to consider incentive pricing on a case-specific basis and an offer of non-monetary regulatory benefits, such as deference in dispute resolution, reduced or eliminated codes of conduct, and streamlined filing and approval procedures."
While it stops short of mandating RTO participation, the proposed rulemaking does seem to leave open the door for a mandate should the incentive system fail to work. For example, the nopr states very clearly that the "objective is for all transmission-owning entities in the nation, including non-public utilities, to place their transmission facilities under the control of appropriate regional transmission institutions in a timely manner." While noting the "proposed rule stops short of generically ordering utilities into RTOs, the nopr document says the ferc remains "concerned that the current transmission grid framework may be preventing electricity markets from reaching full competitive potential." Further, it says the ferc "will evaluate comments received in response to our proposals to determine if additional action is needed."
According to the nopr, the four minimum RTO characteristics are--
- Independence from market participants.
- Appropriate regional scope and configuration.
- Possession of operational authority over transmission facilities under the RTO's control.
- Exclusive authority to maintain short-term reliability.
Meantime, the seven minimum functions are--
- Administer its own tariff and employ a transmission pricing system that will promote efficient use and expansion of transmission and generation facilities.
- Create market mechanisms to manage transmission congestion.
- Develop and implement procedures to address parallel path flow issues.
- Serve as a supplier of last resort for all ancillary services required in Order No. 888 and subsequent orders.
- Operate a single oasis site for all transmission facilities under its control with responsibility for independently calculating TTC and ATC (total and available transmission capacity).
- Monitor markets to identify design flaws and market power.
- Plan and coordinate necessary transmission additions and upgrades.
Under the proposal, RTOs would need to satisfy the four minimum characteristics and at least four of the seven minimum functions on their first day of operation as approved RTOs.
All public utilities that own interstate transmission facilities would be required to file an RTO proposal with the commission by October 15, 2000. Utilities already in an approved RTO would have until January 2001. RTOs would be operational by December 15, 2001. Workshops will be convened over the next several months to solicit industry feedback. The industry has until August 16 to submit comments on the proposed rulemaking. Full text of the nopr can be accessed through the Commission Issuance Posting systems (cips) via the ferc's Internet Home Page (www.ferc.fed.us) using the cips link or the Energy Information Online icon.
Editor's note: Energy buyers seeking to understand issues surrounding transmission access would do well to study this 200-plus page document. It recounts the history of the RTO debate and addresses issues salient to end users such as rate "pancaking" and limits on competition due to "gaming" (either real or perceived) of regional transmission grids.
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