FERC Filings
Motion for Leave to Intervene and Comment of EPSA re: ISO New England Inc., Bangor Hydro-Electric Co., NSTAR Electric & Gas Corp., New England Power Co., Northeast Utilities Service Co., The United Illuminating Co. and Vermont Electric Power Co.
Comments
Last December, the Commission approved the New England regional SMD proposal to establish a framework which relies on locational marginal pricing, and a new multi-settlement and congestion management system to provide appropriate price and investment signals and promote a robust, competitive wholesale electric market. Many aspects of the New England SMD proposal mirror those that have been issued by FERC in its own Standard Market Design NOPR (SMD NOPR), which is crucial to the development of a competitive national wholesale electric market. On March 1, 2003, this model was implemented in New England and is providing a plethora of benefits to the marketplace, including the provision of clear economic signals indicating where investment is needed to alleviate constraints, increase competition and improve reliability.
The filing indicates that the reason to now establish an RTO in New England is to codify the RTO’s independent operational authority over all transmission facilities in the region under one omnibus tariff consisting of general terms and conditions of service, an open-access transmission tariff (OATT), Market Rule 1, funding tariffs and certain pro forma agreements. If approved, the RTO intends to enter into a Transmission Operating Agreement (TOA) with the New England Transmission Owners (TOs) and a pro forma Market Participant Service Agreement (MPSA or Participant Agreement) with market participants, each specifying respective rights, responsibilities and obligations in the RTO market. The Omnibus Tariff, the TOA and other arrangements will replace the current NEPOOL Agreement, NEPOOL OATT and individual local tariffs under which the ISO currently operates.
While the RTO proposal offered by the Filing Parties contains improvements to the marketplace, there are major flaws that are detrimental to the overall proposal. Most importantly, the independence of the system operator is unduly impaired by the structure of the TOA and would likely result in disparate treatment for different sectors of market participants. As drafted, the TOA compromises the independence of the RTO and fails to give the RTO-NE all of the authority and operating control envisioned by Order 2000. For these reasons, the Commission should provide necessary guidance on this and other aspects of the proposal that fail to build upon the successes the ISO has achieved to date. EPSA further urges the Commission to defer consideration of the proposal to grant parties additional time to determine whether they can resolve differences based on such guidance and present a voluntary, mutually agreeable Order No. 2000 proposal for New England.
A. The RTO TOA Conveys Inordinate Control to Transmission Owners
As pointed out in the filing, the current ISO arrangement is based on a vendor-type arrangement between the ISO and NEPOOL, pursuant to the NEPOOL Agreement. According to the ISO, this arrangement creates uncertainties that not only threaten the ISO’s independence, but also the investment climate for transmission and generation facilities in New England. To ensure institutional stability and enhance independence, the ISO now proposes to replace the NEPOOL Agreement with the TOA and related agreements. The TOA essentially replaces one vendor-type arrangement, the NEPOOL Agreement, with another vendor-type arrangement, the TOA. However, in contrast to the NEPOOL Agreement, the TOA mechanism is between the RTO and the TOs alone rather than all NEPOOL stakeholder groups. Hence, though the intent is to strengthen ISO independence, the TOA actually compromises independence, thereby disqualifying it for RTO status under Order 2000. Specifically, the TOA conveys to TOs an undue amount of responsibility and control over the allocation of costs, procedures for scheduling and coordinating outages (both generator and transmission), and generator interconnection requirements.
1. Cost Allocation and Section 205 Rights
Under the TOA and Participants Agreement, the proposed RTO-NE would retain Section 205 filing rights for market rules and terms and conditions for regional transmission service. The TOs will have Section 205 filing rights with respect to revenue requirements, rates and rate design and the terms and conditions of regional and local service. In the proposal, such TO rights include cost allocation of generator interconnection and elective transmission upgrades. As LSEs with financial interests in cost allocation decisions, it is improper to put the TOs in a position to allocate these costs to particular customers. Cost allocations must be a function of the independent ISO or RTO. While the Filing Parties have included in their proposal a five-year moratorium period on the ability to change such cost allocations for existing facilities, this limitation is not sufficient to protect all market participants from unilateral cost allocation changes made by the TOs. Accordingly, the Commission should not accept this RTO proposal without clarifying or changing the division of Section 205 filing rights outlined under the TOA.
Further, while both the RTO and TOs have Section 205 rights for different provisions, the RTO must maintain a clear procedure for addressing unwarranted intrusions into areas over which it has authority, as well as TO provisions that have an adverse impact on reliability or the markets. While the proposal includes a consultation process, it is inadequate to prevent the harms identified by the RTO. The process would unreasonably delay relief to the market pending acceptance of a corrective Section 205 or 206 filing submitted by the RTO. In a Section 206 situation, relief may not be effective until the issuance of a final FERC order. The RTO’s ability to redress adverse circumstances must include a shorter consultative period and the authority for unilateral RTO 205 filings.
2. Outage Coordination Authority
Another provision of the TOA which is troubling is the limitation placed on the RTO’s control over maintenance outages. As with cost allocation, because TOs may own FTRs and have a financial interest in outage schedules and coordination, this function must be performed by the independent ISO or RTO to ensure fairness, efficiency and reliability the of the system as a whole.
3. Interconnection Agreements
Though the filing includes an explanation that the RTO-NE will conform its interconnection process to those developed in the Commission’s final generation interconnection rules, it omits any details on specifics regarding how this would be done. Under the proposal, TOs will “undertake the obligations necessary for responding to such service and interconnection requests,” with oversight by the RTO-NE. This scenario creates confusion regarding who has final responsibility for interconnection requests and cost allocation. Stakeholders should be given an opportunity to comment on the specific details before the Commission approves this aspect of the RTO proposal. Since FERC has already addressed these responsibilities in its generator interconnection final rule, the ambiguity in this proposal is an unnecessary retreat from accepted Commission policy. Further, the Commission should clarify that the RTO-NE process should include a standard, three-party interconnection agreement among the TO, RTO and generator which is filed by the RTO, not the TO.
B. Stakeholders Require Input and Review of TO Filings and Actions
Although the TOA includes a consultation process, by which interested stakeholders can review individual TO filings, there should be a more formal and extensive stakeholder process to ensure stakeholder review of all TO transmission rate filings that impact market functions. Similarly, to the extent that any market or rate making functions are assigned to TOs, all market participants must be assured that such functions and responsibilities are carried out in a transparent manner. This may be accomplished by RTO oversight of such activities, including concurrent notification to market participants when and if modifications to Operating Procedures are made by the TOs so that parties may comment and recommend changes or alternatives.
C. The RTO-NE Proposal Lacks Independence
The proposed RTO-NE’s lack of independence is the most fundamental and problematic flaw in this filing. This element is central to the establishment and effective operation of an RTO under either Order No. 2000 or the White Paper. As FERC stated in the White Paper:
In particular, the lack of independence continues to plague electricity markets because it provides an incentive for those who own generation and operate transmission facilities to operate the transmission system in ways that exclude competing generation suppliers and can allow the exercise of market power. This conflict of interest cannot be remedied through oversight or enforcement. Rather, structural separation of transmission operation from other wholesale market activities is required to eliminate the ability for such manipulation.
In this passage, the Commission described the manner in which traditional utilities exercise control over their service areas. The operation of the New England bulk power markets and transmission system under the SMD and independence exercised by the ISO-NE is a vast improvement over the traditional utility paradigram. Yet, the Filing Parties’ proposal effectively would take steps to reverse the progress that has already been made. This troublesome generic deficiency in the RTO-NE proposal raised serious concerns that likely led to its failure to pass the NEPOOL stakeholder vote. Only the TO sector supported the proposal as drafted, though a majority of sectors support general arrangements to comply with Order No. 2000 and establish the ISO-NE as an RTO. Filing Parties ask that FERC find that its proposal complies with either Order No. 2000 or the standards enunciated in the White Paper. The filing describes an RTO that lacks sufficient independence and, hence, fails on both counts.
Specifically, certain functions must be retained by a fully independent RTO in order to ensure the continued development of a fair, competitive regional wholesale market. This is especially the case in New England, a region that has implemented an LMP-based Standard Market Design with day-ahead and real time markets, which presumes that these markets are administered without undue influence by any market participants or group of participants. By undermining the independence of the system operator, the proposal represents a step backward from the current market configuration.