FERC Filings

MOTION TO INTERVENE AND PROTEST OF THE ELECTRIC POWER SUPPLY ASSOCIATION-Carolina Power & Light Company , Duke Energy Corporation, South Carolina Electric & Gas Company, GridSouth Transco, LLC - Docket No. RT01-74-000

1. Characteristic 1: Independence

a. GridSouth will not satisfy the independence requirement if given the authority over both transmission tariff design and market policy

A ‘for profit’ Transco functioning as an RTO can never achieve the neutrality aspect of independence as it pertains to the initial market design and the establishment of market policies and market rules. Similarly, a Transco Board which has a fiduciary responsibility to maximize the value of its transmission assets for the benefit of its shareholders is likewise not neutral to market policy. A Transco or its Board with such a duty should not have the authority to design the power market or set market rules.
EPSA recognizes the political, operational, and administrative impediments to establishing integrated RTOs across multiple regions, and the interrelated nature of market design in maintaining reliable transmission operations.

Nonetheless, EPSA believes that it is possible to address the absence of Transco neutrality on market rules, and to avoid the seams problems and excessive system operator interference in market operations that have arisen in other regions, by unbundling market design and rule making functions and market monitoring5 responsibilities from the scope of the GridSouth Transco.

EPSA urges the Commission to direct the establishment of a truly neutral market policy decision-making organization whose geographic scope is not artificially constrained by the geographic borders of the currently proposed individual RTO transmission tariffs. Such a common market design should be significantly broader than the one contained in the Applicants’ proposal. The Transco should focus exclusively on transmission service and should have no role in designing power markets, establishing power trading rules or monitoring its own compliance with implementation of those rules.

With respect to the broader Southeast region, EPSA suggests that a neutral organization, independent of the Transco and its duty to maximize transmission asset value, govern market policy across the area covered by the proposed GridFlorida, Southern Company, and GridSouth regions.6 There already is a great deal of similarity between market design proposals in these regions. As these entities continue to develop their markets, their structures raise real concerns that the Transcos will exert too much control or influence over the design and implementation details to enhance their ‘for profit’ motives, to the detriment of efficient market operation within and between proposed RTOs. Moreover, isolated market design processes will result in disparate market designs which are likely to create seams problems throughout the Southeast region.7

Finally, a Transco’s involvement in market design would undermine confidence in the integrity of the marketplace essential for new investment and active market participation. Promises to eliminate seams problems through voluntary ‘virtual integration’ processes in the Northeast have been largely unfulfilled. Structural change is needed and the most efficient and effective way to accomplish such structural changes is to avoid balkanizing market designs at the outset of RTO development. The creation of a cross-RTO market structure will mitigate seams issues and facilitate interregional coordination. Importantly, this approach would also lay the groundwork for transitioning to more geograhically unified RTOs and the possible consolidation of mulitple RTO governance structures.

For these reasons, EPSA recommends that the Commission address the neutrality problem by directing the proponents of the three southeastern Transcos to work with market stakeholders to establish a broad-based market design and policy organization with the authority to establish market design and file market rules. Such an organization must be independent and truly neutral to market outcomes and composed of individuals who have commercial market, investment banking and other experience relevant to competitive market function.8

That entity should have an organizational structure that balances the interests of all market participants.9 Experience with the RTO formation process to date, reflected in numerous filings that fall far short of the goals set forth in Order 2000, indicates that the process would benefit if FERC assumed a more proactive role. Accordingly, EPSA strongly urges the Commission to direct the parties to utilize the resources of its Alternative Dispute Resolution division. 5 Both monitoring of market implementation and compliance of system operator with FERC approved market rules and procedures and monitoring of market participant behavior in the market should be handled seaparately by a truly independent and neutral entity.

6While GridFlorida has utilized a stakeholder process in its development of an initial market design and Southern Company has seemingly copied significant portions of that design, GridSouth has made no effort to develop a market based default market for energy imbalance and ancillary services and merely consolidated the Applicants’ individual rates under an umbrella document. Given the incomplete nature of the GridSouth filing, there are no conflicts between its proposal and other proposals in the Southeastern region.

8 We should learn from the experiment in the Northeast that local governance processes, whether stakeholder or ISO/RTO board authority over market policy, lead to disparate designs which create artificial barriers where no natural barriers do not exist.