FERC Filings
COMMENTS OF EPSA, RELIABILITY EFFORTS
Additional Recommendations
In addition to resolving the CBM issue addressed above, EPSA has several suggestions for immediate implementation this summer that would help facilitate more robust markets, improve market confidence and, in turn, enhance reliability.
Independent Calculation and Posting of ATC
There is a growing concern in the competitive power supply industry that ATC calculation and posting continues to be problematic. More than four years have elapsed since the requirement for OASIS and ATC posting was established in Order No. 889 in April 1996. Despite the work done by the "How and What" Working Groups before that date, North American Electric Reliability Council (NERC) meetings continue to focus on the numerous unresolved ATC issues. All concede that ATC problems continue to hound the industry, making many OASIS sites difficult, if not impossible, to use. Continuing problems include:
In short, while the goal of OASIS and the ATC requirement was to provide market participants with meaningful information about how the system was being used and how it could be used, the result has been far less than satisfactory. To remedy this problem, the Commission should require the immediate implementation of "Level 3" ATC calculation by independent third parties.
This is not an unrealistic proposal. In Order No. 2000, the Commission concluded that regional transmission organizations (RTOs), when operational, should operate at "Level 3" for ATC and TTC calculations. This standard requires that the RTO itself calculates the ATC values based on data developed partially or totally by the RTO. According to the Order, Level 3 "ensures that ATC values are based on accurate information and consistent assumptions."
However, even under an optimistic timetable, RTOs will not all be operational until December 15, 2001. Well-functioning markets require independent calculation of ATC now. In the recent AEP-CSW merger case, American Electric Power Company and Central and South West Corporation, 90 FERC 61,242 (2000), the Commission required that ATC valuation be performed by an independent entity prior to the formation of an RTO. The Order found that independent calculation of ATC would address concerns raised about manipulation of ATC calculations and service denials by AEP. The Commission also concluded that implementing a requirement that ATC calculations be performed by an independent third party could be accomplished in a relatively short time frame. Id., at p. 61,789.
The same is true for other Transmission Providers. While few Transmission Providers have been subject to the scrutiny of AEP, and few have OASIS sites with sufficient data to make a strong case of wrongdoing, the fact is that market participants have serious concerns about the ability of most Transmission Providers to manipulate ATC values. To provide better ATC calculations, which will relieve unnecessary stress on the transmission system, the Commission should require independent calculation of Level 3 ATC information for all Transmission Providers (outside FERC-approved RTOs) immediately.
As an immediate first step, the Commission needs to recognize and address the increasing concern about the validity, accuracy and completeness of information required to be posted on OASIS. More aggressive measures are needed to ensure that Transmission Providers are following and properly implementing FERC policies and NERC procedures. Therefore, the Commission should engage in random audits of key information on OASIS, including TLRs and ATC. These audits could be performed either by FERC staff or by an independent third party on the Commission's own initiative, as well as in response to specific complaints.
Independent Security Coordinators
Again, the Commission needs to borrow a page from the RTO playbook. In Order No. 2000, the Commission concluded that the RTO must be the NERC Security Coordinator for its region. One benefit of having the RTO be the Security Coordinator is to enhance security coordination functions by performing them over a larger region. Another important consideration, however, is that "the independence of the Security Coordinator is important for ensuring non-discriminatory transmission service and the RTO will have that independence."
The role of the Security Coordinators and the impact of their actions on competitive power markets is increasingly important. Security Coordinators are privy to a host of commercially sensitive information about system operations, schedules and reservations. Under an Interim NERC policy, in place only through July 12, 2000, Security Coordinators are required to be "independent of the merchant function" and not pass along information to any wholesale merchant function that is not made available to the market simultaneously.
NERC has also recently moved to institute a Standard of Conduct (SOC) for Security Coordinators. Among other things, the SOC is aimed at limiting disclosure of commercially valuable information. However, even if approved and signed by all Security Coordinators <sup>8</sup>, the SOC does not require true independence and lacks an effective enforcement mechanism. In this regard, NERC's efforts are too little, too late. It is far too easy for Security Coordinators to favor their affiliated merchant function and far too difficult to police that conduct to ensure that Security Coordinators are, in fact, operating the system fairly and in a non-discriminatory manner.
Security Coordinators are also the entities responsible for calling and implementing TLRs, which have wreaked havoc with both reliability and prices for the last two summers.
While NERC's Policy 9 TLR procedures suggest an antiseptic, formulaic approach to TLRs, Security Coordinators have significant discretion in how TLRs are implemented. A recent report, for example, shows that AEP failed to decrement ATC on all paths with more than a five percent power transfer distribution factor during certain TLR events. AEP's failure to decrement these paths benefited its affiliates by allowing their transactions to continue flowing while other suppliers were cut. (See attached chart.)
This behavior appears to be acceptable under NERC's Policy 9, which in Appendix 9C1, provides significant discretion to Security Coordinators at a critical point in the TLR procedures without regard to their potential unfair or discriminatory consequences. At TLR Level 4, Security Coordinators can request that Transmission Providers reconfigure their transmission systems to allow transactions to continue. Transmission reconfiguration can be implemented as long as it does not jeopardize operating security. While minimizing curtailments is, in itself, a laudable goal, if it can be implemented in a way that favors the Transmission Provider/Security Coordinator's generation affiliate, it raises serious concerns about the integrity of the TLR process. Independence of Security Coordinators will provide the confidence needed that the system is being operated fairly and impartially.
As Order No. 2000 recognized, Security Coordinators need to be independent of the Transmission Providers -- indeed, of any entity with a position in the market. The question is how much the commercial markets will be harmed, and their growth stilted, before independence occurs. The appearance of functioning RTOs is at least 18 months away; the lack of independence is a significant problem that should -- and can -- be corrected immediately. Like the suggestion above on independent ATC calculations, EPSA believes that the Commission should impose a requirement that Security Coordinators operate independently of the Transmission Providers as soon as possible.
At a minimum, as an immediate practical measure, the data needed to recreate system conditions existing at the time of a TLR must be available to confirm that all applicable rules and procedures were properly observed. The Commission should require that this "snapshot" information be collected and made available to help ensure that curtailments are absolutely necessary and warranted.
Additionally, the NERC has revised Policy 9 to provide for reallocation procedures under which firm transactions would receive priority over non-firm transactions. This measure has received wide support and is viewed as a positive step toward reducing, if not eliminating, the need for TLRs. A July 11th target date has been set for the implementation of the reallocation procedures. However, there is concern that computer enhancements to the Interchange Distribution Calculator and E-Tagging procedures associated with the reallocation process, as well as delays in training programs, could unnecessarily delay its implementation. If and when implemented, the reallocation procedures are expected to provide some relief from curtailments and make a significant contribution to system reliability. Therefore, the Commission should send a clear signal that these Policy 9 revisions should be implemented as soon as possible, and further require that specific, justifiable reasons be provided for any delay in the implementation of the reallocation procedures.
Single Tariff
At the heart of the problems outlined above is the fact that Transmission Providers are permitted to provide service for native load customers outside the requirements of the pro forma tariff. As a result, the Commission's open access rules apply to less than 20 percent of the transmission service provided. While this figure is a low percentage, it points to a much bigger problem. Since at least 80 percent of all transmission service is provided by utilities to their bundled retail customers, this service remains a "black box." While such a high percentage of transmission service remains outside the requirements of the OATT, its impact on the OATT service is immeasurable. Market participants are simply unable to know if transmission capacity, ostensibly reserved for native load, is actually used for another purpose. Since bundled service remains shielded from any OASIS posting or other public disclosure, the ability to game the system is virtually unlimited and, worse, impossible to detect or prove. Only when all uses of the system occur under the requirements of the tariff will market participants have any confidence that the system is being used fairly and comparably.
While the industry has long debated this issue and the Commission's ill-fated capacity reservation tariff notice of proposed rulemaking of 1996, one option for immediate implementation would be to require native load service to use network service under Order No. 888. While EPSA remains quite concerned that network and point-to-point service under Order No. 888 remain separate and unequal services, having native load service on an open access tariff would be an improvement over the status quo.
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, as a longer-term strategy, comparability is critical if competitive power markets are to achieve their full potential and ensure reliability.
8. The SOC is still mired in NERC's committee review process. There may be a version presented to the NERC Board at its meeting later this month.