FERC Filings
MOTION TO INTERVENE AND PROTEST: WESTCONNECT
PROTEST
A. Introduction
The Commission recently announced its intention to proceed with RTO development along two parallel tracks, with RTO geographic scope and governance issues addressed in pending “RT” dockets like WestConnect’s filing, leaving generator interconnection and market design matters for resolution in the Commission’s forthcoming rulemaking proceedings.
Accordingly, EPSA focuses on independence and governance issues in this Protest. While recognizing that the Commission may elect to defer market design matters for later consideration, EPSA will provide comments on certain troubling aspects of the PTOs’ proposal.
B. The WestConnect RTO Development Process Was Not Open To Stakeholders
The WestConnect effort derives from of earlier efforts to form an Independent System Operator, Desert STAR, in the Southwest. The Desert STAR effort included the PTOs sponsoring the instant Petition, along with stakeholders representing a broad range of industry sectors. Desert STAR was formally incorporated in late 1999, and the Desert STAR Advisory Committee elected an independent Board of Directors in early 2000.
The open stakeholder process produced a relatively complete ISO proposal by April 2001, to be filed with the Commission in May of this year.
Prior to the May 2001 Desert STAR Board meeting, however, the PTOs informed the Board that they wished to pursue a for-profit Transco rather than the ISO proposed for Desert STAR, recommending significant changes to Desert STAR’s tariff and governing documents. The PTOs further informed the Board that if the Board pursued the proposal resulting from the stakeholder process, the PTOs would not commit to transfer operational control of their facilities to the RTO, and would cease funding Desert STAR development efforts. While EPSA generally supports the establishment of a for-profit Transco, the Commission should remember that the WestConnect filing is the culmination, not of the Desert STAR collaborative effort, which welcomed the participation of all stakeholders, but of the subsequent, private negotiations between and among the PTOs. As discussed below, the product of the PTOs’ negotiations significantly shifts authority from the RTO to the PTOs, in contravention of Order No. 2000.
C. The Participating Transmission Owners Retain Too Much Authority Over RTO Operations
In Order No. 2000, the Commission required that any RTO proposal “be independent of individual market participants and classes of market participants.” When the PTOs elected to move away from a stakeholder-driven ISO structure to the for-profit RTO proposed in the petition, they reserved for themselves significant authority, restricting the ability of the RTO to independently operate the grid. The pro forma Transmission Control Agreement (“TCA”) is replete with requirements that the RTO “consult with” the PTOs before taking action. The RTO cannot, among other things” revise its own Tariff, Protocols and Operating Procedures, promulgate Reliability Criteria, or calculate Total Transfer Capability or Available Transmission Capability without first consulting the PTOs. The RTO is not required to consult with any stakeholder other than the PTOs before taking these actions.
In addition, the PTOs reserve for themselves significant authority to block RTO action. Three-quarters of the PTOs executing a TCA may postpone the RTO Operations Date if they conclude, apparently at their own discretion, that the RTO is unable to perform its obligations. Even where the RTO Tariff ostensibly gives the RTO authority over the PTOs and PTO facilities, the TCA grants the PTOs the ability to prevent RTO action, as Section 4.6 of the TCA provides that in the event of a conflict between Section 6.2 of the TCA (which incorporates by reference most sections of the TCA granting power to the PTOs) and any other WestConnect document, the TCA prevails.
Each PTO has absolute veto authority over any change to the WestConnect rate methodology through January 1, 2009, as the RTO cannot implement a change to the methodology without the unanimous consent of all PTOs. The PTOs also reserve the right to deem the RTO in material violation of the TCA. In addition, as discussed below, the PTOs have granted themselves a right of first refusal to construct transmission facilities, preferential treatment of PTO contracts and preferential access to congestion rights.
The Board of Directors selection process set forth in the Limited Liability Company Agreement (“LLC Agreement”), Attachment 3 to the Petition, likewise favors the PTOs. Under the LLC, each of the PTOs, as either a Member or Debt Holder, is entitled to a seat on the Board Selection Committee. Stakeholders from any of the other seven sectors must choose a single member of the Committee to represent the sector. The Committee is then divided into two voting groups, PTOs and everyone else. Assuming the Committee cannot select a Board by consensus, the groups exercise a series of “strikes” to narrow a 24-member slate to eight candidates. This “strike” process favors the PTOs, who together exercise eight strikes – the remaining seven sectors (with a single Generator representative) are left to fight over the remaining eight.
Taken in toto, the proposed WestConnect TCA and LLC Agreement reserve too many rights for the PTOs, granting them veto authority over RTO action, preventing the RTO from controlling its own tariff, and ensuring that the RTO is not independent of market participants. The Commission should require the PTOs to work with all stakeholders to develop an RTO operational and governance structure that is truly independent.
D. WestConnect Improperly Allows PTOs To Retain Control Area Functions
The PTOs claim that their proposal results in the consolidation of existing Transmission Owner control area functions. This is not true. Both the TCA and WestConnect Tariff allow PTOs operating control areas to retain control area functions by creating a “Self-Tracking System.” A PTO operating a Self-Tracking System may calculate its own Demand forecast when submitting net interchange schedules to the RTO, may self-supply energy imbalances outside the Energy Imbalance market applicable to other market participants, may dispatch its own Regulation, Load Following Up, Load Following Down and Supplemental Energy to meet ancillary service requirements, and may shift generation within different Resources. In short, PTOs operating Self-Tracking Systems continue to operate control areas while remaining market participants, free from balancing energy and ancillary service obligations imposed on other market participants. In Order No. 2000, the Commission concluded that “providing options for clearing imbalances that differ among customers would be unduly discriminatory.”
There may be reasons to allow some measure of flexibility to certain PTOs to accommodate differing requirements. For example, the Commission encourages RTOs to make reasonable accommodation to public power entities to encourage such entities to participate in the RTO. WestConnect, however, has provided no justification for allowing some PTOs to retain control area functions while remaining market participants, exempting such PTOs from the energy imbalance and ancillary service requirements applicable to all other customers. The WestConnect “Self-Tracking System” proposal is unreasonable and discriminatory.
E. The Commission Should Require All RTO Load To Take Service Under The WestConnect Tariff
In order to create a robust competitive market, EPSA believes that all load, including bundled native load and load under existing transmission contracts, should take service under the RTO tariff as soon as possible. While it may be important to “balance the desire to honor existing contractual arrangements with the need for a uniform approach for transmission pricing,” grandfathering of existing contracts and exclusion of load from the RTO OATT rates, terms and conditions should be strictly limited. The WestConnect proposal, however, excludes a significant portion of PTO load from the tariff, favoring the PTOs over other transmission users.
The TCA provides that almost all existing contracts may remain outside the tariff – only PTO-to-PTO contracts that involve only transmission must be converted. Furthermore, WestConnect must protect existing contract renewal terms, ensuring that some existing contracts may continue in force, outside the WestConnect OATT, indefinitely. Compounding this problem, the WestConnect Tariff defines an Existing Contract as one executed prior to one-hundred eighty days before the Independence Date. As the PTOs have discretion to postpone the RTO Independence Date, it is likely that some contracts will be executed after a Commission order in this proceeding, with full knowledge that the contract will be an Existing Contract, placing load outside the operation of the tariff. Consistent with RTOs approved to date, the Commission should require WestConnect to define Existing Contracts as contracts executed prior to the first Commission order approving the WestConnect RTO. In addition, the Commission should require parties to existing contracts to negotiate in good faith to attempt to convert existing contracts to the WestConnect Tariff where possible, or require the PTOs to adopt a measured approach to convert Existing Contracts to the WestConnect Tariff.
F. Congestion Management and Ancillary Services
The preference for the PTOs is evident in the Congestion Management structure proposed for WestConnect. The WestConnect RTO will manage Intra-Zonal Congestion through the use of voluntary Congestion Redispatch bids. To the extent that there are insufficient voluntary Congestion Redispatch bids, WestConnect may exercise authority to order rescheduling of generator units or dispatchable demands.
Appendix A provides that payments made to Scheduling Coordinators for mandatory rescheduling are made pursuant to the Ancillary Services provisions of Appendix D, which in turn provide that Congestion Redispatch service is provided by contractually committing to WestConnect through Congestion Redispatch service bids. The reference is confusing, however, as Appendix B: Scheduling, provides that each bid must specify a “capacity bid ($/MW) . . . (note that for Congestion Redispatch and Supplemental Energy, this capacity price is deemed to be zero ($0/MW)).” EPSA requests that the Commission clarify that generators subject to mandatory rescheduling receive compensation for costs incurred, including lost opportunity costs.
For Inter-Zonal congestion at FTR Interfaces and Scheduling Points WestConnect though will rely on Firm Transmission Rights (“FTRs”), Recallable Transmission Rights (“RTRs”), Non-Firm Transmission Rights (“NTRs”)and Non-Converted Rights (“NCRs”). To the extent that the Objective Transmission Capability of a FTR Interface or Scheduling Point requires reduction, WestConnect first will curtail NTR’s, then RTRs and FTRs. EPSA generally favors congestion management systems based on financial rights, which have greater liquidity and encourage the development of secondary markets. WestConnect, however, proposes a physical rights model that guarantees the PTOs a competitive advantage.
For example, Appendix A provides that PTOs “will have priority over other bidders to receive FTR allocations” in the auction of Firm Transmission Rights. The WestConnect proponents offer no justification for the preference. In fact, the preference for PTOs would appear to be contrary to the requirements of Order 2000 that “limited transmission capacity is used by Market Participants that value the use most highly.” While the PTO “must bid the Maximum Allowable Bid” for all required FTRs” the bidding requirement is hollow given that auction revenue is credited to “FTR Requirements Load of the FTR Interface or Scheduling Point.” EPSA requests that the Commission reject the PTO bid preference.
Finally, as noted above, the WestConnect proposal excludes existing contracts from the terms of the OATT. This exclusion includes removing the capacity of those contracts from the calculation of Operating Transfer Capability (“OTC”), thus reducing the available FTRs by the capacity of existing contracts. These existing contracts should be placed under the OATT, including the congestion management proposal.
G. WestConnect Should Adopt The GridFlorida Market Monitoring Plan
The WestConnect Market Monitoring proposal is devoid of detail. The PTOs commit only to form an independent Market Monitoring Unit within the RTO, which will develop criteria, procedures, standards and specifications to be used in monitoring markets and market participants for evidence of exercise of market power.
Nevertheless, the PTOs ask the Commission to approve processes applicable to undefined market monitoring standards. For example, WestConnect proposes to develop data specifications in the future, but asks the Commission to approve processes applicable to these undefined data specifications now. It is impossible for the Commission to determine whether WestConnect’s proposed processes are appropriate until the PTOs provide details.
EPSA generally supports the GridFlorida Market Monitoring plan, which was developed through a collaborative stakeholder process. The GridFlorida Market Monitor is an independent corporation that examines compliance with market rules, competitive practices of individual Market Participants and GridFlorida, and market power and market power abuses. The Market Monitor has authority to seek resolution of market power abuses through informal negotiation, issuance of a demand letter instructing participants to cease anticompetitive actions or filing a Complaint with the Commission. In addition, the Market Monitor may request Commission approval of enforcement mechanisms (to be applied prospectively) and may request commercially sensitive material to establish market power abuses, with Commission approval. EPSA believes that all sanctions for market power abuse should be imposed by the Commission, pursuant to a complaint from the Market Monitor. The Commission should require WestConnect to file a detailed plan, subject to Commission approval, and establish that their final plan, including applicable criteria, is at least as good as the GridFlorida plan.
H. WestConnect’s Pricing and Rate Methodology Is Unjust and Discriminatory
EPSA notes that the WestConnect pricing and revenue methodology is incomplete, and does not include actual transmission rates or an end-state rate methodology. EPSA, therefore, is not in a position to fully address the rate proposal. Several deficiencies in the proposal stand out, however. First, the PTOs do not commit to transition to a single, region-wide average rate, or even to consider such a rate design in the future. In addition, PTOs serving load outside the RTO footprint do not pay the Wheeling Out Rate, but instead pay the Access Area Rate for the PTO’s own pricing zone. Generators that engage in wheeling transactions would pay a higher rate for such transactions than would the PTOs.
I. Interconnection Procedures and Interconnection Agreement
Appendix Q of WestConnect’s proposed OATT sets forth the procedures for interconnection to Access Authority Facilities and information regarding the interconnection agreement process. The Commission should defer resolution of Appendix Q issues until the conclusion of the generic proceeding on interconnection agreements and procedures (“Generic Proceeding”). It is an appropriate and useful preservation of resources to delay action on Appendix Q at this point in time because the very same issues presented by Appendix Q will be addressed in the Generic Proceeding.
Moreover, problems associated with the lack of complete RTO independence and unduly favorable treatment of transmission owners also infect Appendix Q. For example, Appendix Q improperly grants the PTOs too much input and decision-making authority throughout the interconnection process, in conflict with Order No. 2000 and subsequent orders. Appendix Q also provides transmission credits to interconnection customers only if WestConnect owns the facilities, in violation of Commission policy. As the Commission has emphasized, independence is compromised when transmission owners are overly involved in the interconnection process. EPSA agrees that over involvement by transmission owners in the interconnection process creates both the opportunity for bias in favor of the transmission owner’s generation and the perception of bias. Both circumstances erect barriers to entry by new generation. Given the inappropriate authority granted to the PTOs in Appendix Q, the role delegated to the PTOs should be assumed instead by WestConnect.
In addition, Section Q.10(c)(iv) addresses transmission credits granted by WestConnect to an interconnection customer; however, it is unclear for which facilities transmission credits will be granted, and thus whether the provision of transmission credits complies with Commission policy. WestConnect should conform Section Q.10(c)(iv) to the Commission’s policy regarding “credits for network upgrades associated with the interconnection of a generating facility has been, and continues to be, that all network upgrade costs (the cost of all facilities from the point where the generator connects to the grid), including those necessary to remedy short-circuit and stability problems, should be credited back to the customer that funded the upgrades once delivery service begins.” Indeed, the Commission required GridFlorida to provide credits for all upgrades towards all services noting that the Commission’s credit policies apply in the RTO context, as well. WestConnect has provided no basis to treat the proposed RTO any differently, and Appendix Q should be revised to provide for credits, consistent with the Commission’s current policy, including interest.
Furthermore, Section Q.10 improperly distinguishes between PTO ownership and WestConnect ownership of Interconnection Facilities. Section Q.10 provides that if a PTO owns the facilities, the PTO will reimburse the interconnection customer by making amortized payments over the book life of the facilities, whereas if WestConnect owns the facilities, WestConnect will grant transmission credits in accordance with FERC policy. No rational basis exists for such distinction, and the PTOs should be required to provide credits on a timely basis, commensurate with the term of any subsequent transmission reservation.
These issues are but two of the numerous issues raised by WestConnect’s proposed interconnection procedures and interconnection agreement. As stated above, EPSA recommends that the Commission defer resolution of Appendix Q issues until the conclusion of the Generic Proceeding to conserve resources and provide uniformity for all interconnection customers.
J. WestConnect’s Planning And Expansion Policy Does Not Adequately Consider Non-Transmission Solutions
The WestConnect Tariff provides that WestConnect will be responsible for developing Planning Standards and the Regional Transmission Expansion Plan. WestConnect will create a WestConnect Transmission Planning Working Group, with stakeholder representation, but the Working Group merely provides input to the WestConnect Board, with no structured voting. EPSA believes that markets should determine which expansion solutions are appropriate. A for-profit transco may have incentives to favor transmission solutions over generation or demand-side alternatives. WestConnect commits only to “consider economic alternatives, such as additions or expansion of Generating units . . . as potential replacements for or additions to expansion of Planning Authority Facilities.” This commitment does not go far enough, and WestConnect may still favor transmission expansion over other solutions.
Finally, the RTO Tariff gives the PTOs a right of first refusal to construct and own transmission facilities proposed by third parties. While EPSA believes that the RTO should have the authority to order the PTOs to construct facilities, in order to ensure that needed facilities are built, the PTOs should not have a right of first refusal to construct and own facilities. Otherwise, the PTOs will be able to capture valuable projects for themselves, excluding other market participants.