FERC Filings
FERC RTO NOPR COMMENTS
Executive Summary
UNITED STATES OF AMERICA
FEDERAL ENERGY REGULATORY COMMISSION
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Regional Transmission Organizations
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RM99-2-000
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Executive Summary
On May 13, 1999, the Federal Energy Regulatory Commission (FERC or Commission) issued a Notice of Proposed Rulemaking (NOPR) on Regional Transmission Organization (RTOs). The Electric Power Supply Association ("EPSA") welcomes the Commission's initiative and this opportunity to provide comments. EPSA shares the Commission's belief that:
appropriate regional transmission institutions could successfully address the existing impediments to efficient grid operation and competition and could consequently benefit consumers through lower electricity rates resulting from a wider choice of services and service providers.
Further, EPSA shares the Commission's concerns about the "transmission-related impediments to a competitive wholesale electric market" that endure in the wake of Order Nos. 888 and 889 . The Commission correctly catalogues the "engineering and economic inefficiencies inherent in the current operation and expansion of the transmission grid," inefficiencies that EPSA agrees, "in and of themselves, are hindering fully competitive power markets and imposing unnecessary costs on electric consumers." The Commission also identifies "continuing opportunities for transmission owners to unduly discriminate in the operation of their transmission systems so as to favor their own or their affiliates' power marketing activities." EPSA members and other competitive power market participants have firsthand experience with these discriminatory practices, which have a direct and inhibiting impact on the ability of market participants to bring the benefits of competition to the wholesale electricity markets.
The development of a seamless national transmission system wherein all transmission usage is accorded fully comparable treatment is vitally important to the growth of a competitive electric power industry. EPSA believes that the establishment and/or enhancement of regional transmission organizations represents one of the next steps towards that end. The main reason RTOs are important is that they can facilitate non-discriminatory access to and efficient usage of the transmission system. As the Commission notes in the NOPR, transmission-owning utilities have an inherent conflict of interest that often leads to preferential treatment for their own or their affiliate's customers, to the detriment of third-party transmission customers. Policing these abuses is difficult and expensive.
Moreover, the Commission is correct that properly structured and motivated RTOs are important because additional investment in power industry infrastructure (power plants, transmission facilities, etc.) is predicated on investors' confidence in the competitive market's ability to provide the structure, predictability, liquidity and risk management opportunities necessary to justify multi-billion dollar expenditures. The ongoing growth in electric demand is resulting in expanding power industry requirements that necessitate new infrastructure investments now. Ideally, RTOs should be able to facilitate the creation of the required competitive industry structures, as well as remove or mitigate barriers to competition that exist naturally in a highly regulated and capital-intensive industry, such as the electric power production and delivery industry.
Accordingly, EPSA concurs with the Commission's proposed rulemaking to establish fundamental characteristics and functions for RTOs that will help ensure that RTOs achieve the goal of supporting and facilitating the nondiscriminatory transmission services needed to support competitive markets. The Commission's Final Rule must address how best to eliminate discrimination and how to ensure that these regional organizations accomplish their intended purpose of facilitating competitive markets.
Today, however, vast regions of the country employ no form of regional transmission management, leading, as the Commission correctly concludes, to a host of market and efficiency losses. In some areas of the country, voluntary RTO discussions are occurring only because the prospect of FERC action is serving to bring parties to the table. FERC's proposal to require all public utilities, not already participating in a FERC-approved independent system operator (ISO), to file a proposal for an RTO meeting those minimum characteristics and functions, or explain the efforts to do so, by October 15, 2000, is one step in the right direction. The Final Rule must encourage greater participation in regional grid management organizations.
Moreover, just creating RTOs is not enough. Given the difficult experiences EPSA members and other market participants have had to date with many of the existing ISOs, the Commission must ensure that RTOs do not perpetuate the very ills they are designed to cure. Therefore, EPSA welcomes the Commission's proposal to require public utilities already in regional institutions show how that institution meets the minimum characteristics and functions by January 15, 2001. Those filings can help address and solve the continuing discrimination within current ISOs and can also address whether these institutions should be combined into larger regional groupings.
Ultimately, however, the elimination of residual discrimination will occur only when all uses of the transmission grid are under the same rate schedules, terms and conditions. With actual comparability, the transmission owner's interest would be to operate the grid as a stand-alone business and maximize throughput, rather than to use transmission to increase the return on its investment in power generation, marketing and sales. With its incentives aligned in this manner, the transmission operator could be expected to pursue those regional combinations that make the most business sense. Thus, comparability is critical if competitive power markets are to achieve their full potential.
EPSA concurs with the statement made by Chairman Hoecker when the NOPR was issued: "RTOs may be the single most important means to the goal of efficient markets and real competition, but RTOs are not the end in and of themselves." Properly implemented RTOs will be an incremental improvement in market efficiency. Still, even this is not sufficient. To eliminate residual discrimination, all uses of the transmission system must take service under the same terms, conditions and rate schedules. Without equal treatment of all participants in the electricity market, RTOs alone will not suffice to remove the inequities in the present market. EPSA urges FERC to adopt the Petition for Rulemaking on Industry Structure (see footnote 6, infra) to establish comparability; to take all the steps needed to promote robust, competitive bulk power markets.
In the Comments below, EPSA endorses many of the proposals put forward by the Commission and urges prompt adoption of a Final Rule. Perhaps most importantly, EPSA welcomes the Commission's commitment to flexibility and "open architecture" and its commitment to avoiding the temptation of rubber stamping one type of RTO structure for all market participants. Both ISOs and transmission companies (Transcos) are in early evolutionary stages and regulatory policy must allow room for growth and experimentation. When properly constituted and motivated, both ISOs and Transcos, can provide efficient operation and management, perhaps even in concert. EPSA agrees it would be premature to rule out (or to endorse) any particular organizational model for RTOs. Rather, the number, size, and structure of RTOs should be driven by the demands of the market and by the RTO's ability to achieve the aforementioned functional goals.
In addition, EPSA makes certain recommendations with respect to the proposed rule. As discussed further below, EPSA urges the Commission:
To provide greater flexibility with respect to the initial ownership limitations imposed on Transcos;
To impose an eighth function on RTOs, requiring them to facilitate interconnection of new generators;
To limit the role of RTOs in market monitoring to information gathering and reporting; and
To eliminate RTO participation in energy markets.
As a final note, while consulting with the states is important to achieving the Commission's statutory mandate and policy goals, FERC ultimately must assume responsibility for the timely establishment of nondiscriminatory transmission service because electricity respects no state boundaries.