FERC Filings
FERC RTO NOPR COMMENTS
Minimum Functions (Cont.)
D.
Serve As Supplier of Last Resort for All Ancillary Services
The NOPR proposed that, as a transmission provider, an RTO must provide, or cause to be provided, the six ancillary services required by Order No. 888 and subsequent orders. Since the RTO will not, by definition, own any generating resources, the NOPR recommends that ancillary service providers be subject to the complete operational control, directly or indirectly, of the RTO. RTOs would determine the quantities and, where appropriate, the locations where certain ancillary services must be provided.
EPSA concurs with FERC's requirement that RTOs step into the obligations imposed on transmission providers to supply or obtain ancillary service. EPSA urges FERC to require that, where possible, RTOs use competitive procurements to obtain the ancillary services needed. The Commission's recent order in Avista Corporation, found that "provision of [ancillary services] is a key component in the development of competitive markets." That Order was designed to "encourage entry into the ancillary service markets and promote competition in these markets." While that Order was not applicable to ancillary services provided to RTOs, the underlying concept: promoting competition for ancillary services, should be incorporated into the Final Rule.
E.
Operate a Single OASIS Site for All Transmission Facilities Under Its Control With Responsibility for Independently Calculating the TTC and ATC
The NOPR recommends that RTOs must serve as the single OASIS site administrator for all transmission facilities under its control. As such, the RTO would independently calculate TTC and ATC. This is another important role for an RTO. As the NOPR notes, an RTO will "produce better ATC estimates because it would have access to complete regional usage information, would have current information because the RTO will be the security coordinator as well as the OASIS site administrator, and would calculate ATC values on a consistent regional-wide basis using a regional flow model." EPSA concurs that ATC calculations made within each region by a single entity, using a single set of rules and procedures and real-time information, will improve the value of ATC data in the market.
Confidence in market information is critical, and sorely lacking in today's environment. Information is not posted in a timely manner, ATC is often vastly underestimated by conservative transmission providers, and disappears at the apparent whim of other transmission providers. Having an independent and neutral RTO calculate and post ATC will address many of these concerns. As the level of transmission operations rises (and it appears to be higher today than in prior years), RTOs will need to be ever more vigilant in determining ATC. Assuming steadily increasing demand for power nationwide that is not met by transmission expansion, new technologies, or more efficient operations, congestion is likely to increase and market participants will need to be able to react to this important market condition.
There are also simple information management issues that RTOs will be able to address. For example, transmission customers are often stymied by inconsistent path names and ATC calculations at the same interface. Having an RTO address these issues on a regional basis will help solve some of these problems and minimize or eliminate the current inefficiencies that result when adjacent utilities make inconsistent ATC determinations. In an RTO of sufficient size and independence, the ATC calculations can be performed in a consistent manner across the entire RTO and not be skewed by artificial limitations of small control areas. In addition, RTOs must be instructed to work closely with their neighbors to ensure that new border problems are not created.
It is important to point out, however, that although frustration with ATC calculations may be lessened by RTO formation, they will not be eliminated until all customers (including native load) reserve and schedule transmission service under a single tariff. The heart of the current dissatisfaction with "black box" ATC calculations is the problem of transmission providers' holding back transmission capacity for their own native load and network service. Confusion and uncertainty over the validity of ATC calculations will continue until transmission providers actually have to rely on ATC postings for all their transmission service, not just their wholesale sales.
F.
Monitor Markets to Identify Design Flaws and Market Power
The NOPR posits that RTOs must monitor markets for transmission services, ancillary services and bulk power markets to identify design flaws and market power. RTOs would be responsible for proposing appropriate remedial actions. EPSA agrees that RTOs have an important role to play in gathering information about transmission availability and market operations. The focus of an RTO's market monitoring function should be to provide FERC with technical support and information. A large RTO will have a professional staff that can efficiently and effectively perform this technical support function. RTOs should develop reporting procedures that are designed to collect and publish information about the operation of the transmission system as it affects markets, with the goal of allowing market participants and FERC to determine whether such markets are facilitating competition. The information and market data collected by an independent and unbiased RTO could be relied upon by market participants in formulating business strategies, and by regulators for purposes of reviewing and approving modifications to regulated aspects of RTO structure and operations.
RTOs should have adequate authority to enforce FERC-approved transmission rules as necessary to ensure system reliability and efficient market operations. The RTO also should coordinate the administration of alternative dispute mechanisms. However, EPSA is concerned about the Commission's use of the term "light-handed" regulation. RTOs should not be established as, or transformed into, quasi-regulatory bodies with ongoing authority to investigate the market activities of industry participants, or to sanction behavior it deems inappropriate. This is specifically the responsibility of FERC.
Certainly, the RTO should not be empowered to sanction the bidding practices of a particular market participant based solely on its unilateral belief that such practices may be unduly discriminatory or otherwise evince the exercise of market power. The latter requires making subjective determinations about the competitive practices of market participants and would constitute an unwarranted and unnecessary intrusion into market operations. Rather, to the extent an RTO questions the business practices of any participant, it should have authority to raise such action at an appropriate forum, e.g., FERC. Nor should an RTO have unilateral authority to impose price caps or other measures designed to affect market rates. Under the Federal Power Act, only the FERC has authority to determine just and reasonable rates.
Perhaps more importantly, RTOs must not use "reliability" as an excuse to address what may be perceived as market failures but are actually the normal functioning of the market. High prices during some time periods are generally signs that the market is signaling the need for additional capacity (or reduced demand). These times should not be seen by the RTO as signals that it need apply Draconian methods to "maintain reliability." If the RTO believes that the market is not responding properly, the RTO may be in a position to provide information on market behavior confidentially -- in the manner of a "grand jury" -- to FERC so that the Commission can then investigate the issue and report on the potential transmission-related (or other) causes. The RTO should not be empowered to remedy the situation through market intervention unless it has the potential to become catastrophic - a true emergency.
RTOs that are not reticent about stepping into markets will chill resolution of problems by those market participants directly affected. An example is in the area of generation adequacy, which is oftentimes characterized as a reliability issue, but is in fact a mismatch between purchasers' and suppliers' views of the adequate level (and cost) of supply. RTOs may need to examine why incentives are not adequately aligned and what changes to market rules may be necessary to create better alignment (e.g., do load-serving entities have appropriate incentives to purchase adequate supplies for their expected load?), but should make every effort to avoid out-of-market solutions, such as offering contracts directly to suppliers for new generation. While the latter might seem an appropriate short-term fix, the implications for future market operation are ominous.
Accordingly, while RTOs should have market monitoring and emergency mitigation functions, they should be required to exercise their authority within the strict confines of the regulatory oversight provided by FERC. RTOs should limit their activities to data gathering and investigating transmission-related complaints and then reporting their findings to FERC for final disposition.
G.
Plan and Coordinate Necessary Transmission Additions and Upgrades
The NOPR posits that RTOs must be responsible for planning necessary transmission additions and upgrades that will enable it to provide efficient, reliable and non-discriminatory transmission service. EPSA agrees that an essential role for RTOs is transmission coordination and planning. RTOs should be responsible for conducting the studies necessary to assess the need for new transmission system enhancements and conducting system impact and other studies for new generation interconnections. Such system enhancements should take into account new entrants into the market, and the level of upgrades, if any, for which the new entrant is responsible.
As the NOPR points out, RTOs should be able to see the "big picture" and eliminate planning and expansion of grid facilities "on a piecemeal basis." To ensure fairness, this requires clearly defined study criteria and a predictable and fair construction sequencing process. There must be clearly defined rules as to whether new market entrants have the same transmission rights as existing generators and other transmission customers.
Moreover, RTOs should facilitate market participants' efforts to expand the generation and transmission systems, to the extent desired, beyond what may be necessary merely to maintain safe and reliable service. Third-party, non-transmission owning, private investors may wish to make transmission investments in exchange for receiving the value and rights associated with their investments. Expansion projects should be allowed to be undertaken, with appropriate RTO coordination, by the parties who will benefit from the system's expansion. This direct involvement of the benefiting party creates a market control over the decision to expand the transmission system. While benefiting parties would receive valuable consideration, in terms of transmission rights or otherwise, from the RTO as reimbursement for their investment, each would have measured the size of this benefit against the cost. Decision making of market participants would thus act as a market-based check on the RTO's planners. Still, RTOs should ensure that system improvements benefiting certain parties do not unduly impact other parties. RTOs should be charged with efficiently balancing the competing desires of various market participants, with FERC as an appropriate backstop in the event the RTO cannot amicably resolve certain issues.
The above conditions apply equally to an ISO and a Transco structure. The Transco, however, brings the capability of itself investing in transmission upgrades that will reduce the Transco's operating costs through increased transfer capability. This provides a means of assuring that the market will be structured to assure that transmission investments are efficiently traded off against generation investment.
Given the discussion above, routine investments to mitigate congestion should not be made exclusively by an RTO, but should be permitted by market participants. RTOs can potentially preclude adequate market responses by developing plans to mitigate congestion ahead of the market. System expansion may benefit many members of an ISO, but no particular set of users sufficiently to undertake the necessary investments. Similarly, there may be investments in technological or operational innovations available to the RTO - specifically the Transco -- that could be alternatives to physical expansions of the transmission system. These investments would benefit the owner/operator of the Transco, as well as all transmission customers.
Siting of transmission has become the principle impediment to transmission expansion. The RTO should be delegated sufficient authority to direct transmission owners or others to exercise their eminent domain authority, as necessary, to implement transmission system expansion plans independent of the source of funds or the beneficiary of the project. Under current law, this authority must come from the states. As discussed below, however, EPSA supports enactment of federal legislation providing FERC authority over system planning and jurisdiction over transmission siting approvals.
To the extent that market participants in a given region elect to pay for new transmission upgrades, specifically in conjunction with new interconnections, on a predominately direct assignment basis, there may be less of a need for the RTO to analyze which upgrades would best benefit the entire region. Rather, if a developer elects to pay the full costs of any upgrades, then the RTO could focus on the more limited issue of whether the new interconnection would adversely affect the reliability of existing operations. If the new upgrades cause no harm, then they should go forward without the need for broader regional analyses.
A related issue is the extent to which an RTO should have authority to approve or disapprove of a generation developer's site selection for which new transmission upgrades may be required to accommodate the new interconnection. EPSA does not foresee an active role for the RTO in this regard. As discussed herein, an important function of the RTO is to facilitate new generation development and associated interconnection. It, therefore, should not be in the business of reviewing a developer's site selection plans, absent unmitigatable reliability problems. The function of the RTO is to be the guarantor of the concept of regional efficiency. Therefore, its role cannot be one of approving, or even commenting on, a generation developers' site selection. The role of the RTO is to provide the economic information to the developer of the cost and, when it exists, any positive or negative operational impacts of the unit on the system.
Finally, EPSA recommends changes in the way new transmission construction is approved. EPSA advocates the passage of federal legislation that vests FERC with primary jurisdiction over major transmission planing and siting decisions, perhaps subject to a requirement that FERC consult with a regional siting authority or a consortium of affected state siting boards. The regionalization of transmission services demands that major transmission planing and siting decisions, such as determinations regarding the appropriate size and geographic location of new transmission facilities, are made by a governmental entity capable of balancing the needs of multiple jurisdictions, such as is the case with construction of gas pipelines that falls under FERC's jurisdiction.
Today, many states have taken an active role in resource planning; to the extent not federalized, the approval by local siting boards of new generation and transmission construction is an integral part of system expansion. It will therefore be important for these state agencies to coordinate their activities with those of the RTO to process applications for interconnection or other system expansions more efficiently.