FERC Filings
MOTION TO INTERVENE AND COMMENTS OF THE ELECTRIC POWER SUPPLY ASSOCIATION ON TRANSLINK'S PROPOSAL TO FORM AN INDEPENDENT TRANMISSION COMPANY
INDEPENDENCE
Order No. 2000 states that “a[n] RTO needs to be independent in both reality and perception”…and that such entity must be independent of “[a market participant] whose economic or commercial interests are likely to be affected by an RTO’s decisions and actions.” In this proceeding, the TRANSLink proposal fails to meet the Commission’s independence requirements and fails to demonstrate that it will ensure equal and nondiscriminatory treatment of all users of the grid on an equal basis.
As proposed, TRANSLink, a limited liability company (LLC), will have one managing member and one or more non-managing members. The managing member, TRANSLink Corporate Manager, will be governed by a Board of Directors elected by its shareholders and will direct all managerial aspects of the LLC. Indeed, it is the very composition of Corporate Manager’s Board of Directors that initially compromises TRANSLink’s independence. The nine-member board is to be initially seated with seven members who will be unaffiliated with market participants – the remaining two will be selected by the public power and private power transmission owning entities, respectively. Although the Commission does not mandate detailed governance requirement’s for RTO boards, it does note that,
any RTO governance proposals, whether from an ISO, transco or a hybrid arrangement, will be judged on a case-by-case basis against the overarching standard that its decision-making process must be independent of individual market participants and classes or market participants.
Although TRANSLink does not purport to be an RTO, it must prove its independence to the Commission. Blatantly favoring one group of market participants, in this case transmission owners, neither satisfies the reality or perception of independence for the ITC and blatantly compromises Order No. 2000, where the Commission stated that, “We believe that it would compromise an RTO’s independence if one or more transmission owners could influence the RTO’s decisions to the detriment of other market participants.”
The Commission goes on to state that it will have to examine the ownership interests of other proposals [i.e., transcos] and whether such proposals could affect the independence of the decision making process. Such has been the case in other regions of the Midwest—namely, the ARTO—where the incumbent transmission owners have unduly influenced the outcome of the so-called stakeholder process in ARTO development. As in this case, the Private Power Participants and Public and Cooperative Power Participant groups, respectively, represent parties who are active market participants whose decisions will directly affect the decision making process of the ITC. As such, these participant groups should not be given preferential treatment in the selection of board members.
The independence requirement is further compromised by the fact that the transmission owning entities are still tied to their transmission assets through leases or operating agreements to transfer functional responsibility for their transmission assets to TRANSLink, subverting true independence. As such, the Commission must not accept leasing arrangements and operational contracts unless the agreements are transparent to both market participants and the Commission to serve as sufficient assurance that the ITC satisfies the independence requirements. In Order No. 2000, the Commission established key elements to consider for passive ownership of RTO market participants. The first entails a burden of proof on the RTO to demonstrate that “control of the RTO is truly independent and that the RTO has a decision making process that is independent of control by the passive owners.” The Board composition with continued transmission owning entity involvement does not live up to this Commission parameter. The second requires the RTO with passive ownership interests to construct a process for an “independent compliance audit to ensure the independence of its decision making process from the passive owners.” By all accounts, it is unclear that TRANSLink proposes to safeguard against passive owner abuses. The proposal suggests a compliance audit without significant definition about compliance reports. In fact TRANSLink suggests that any compliance audit results would not have to be submitted to the Commission.
Therefore, the TRANSLink proposal fails the basic test – to be independent in both reality and perception – and only promises to play favorites and further distort the market segmentation in the Midwest region. The Commission should require the TRANSLink participants to work with all stakeholders to develop an RTO operational and governance structure that is truly independent. A truly independent RTO will not require the duplication of responsibilities and associated economic consequences that will come with TRANSLink’s proposed “RTO within an RTO” structure.