FERC Filings
EPSA's Comments and Motion to Intervene in Duke's ITE Proposal
Comments
A. Overview of EPSA’s Approach to ITE Proposals
The filing by Duke of an ITE proposal, as well as similar proposals filed by Entergy and MidAmerican Energy, signals an evolutionary step in the development of markets outside of organized RTO or ISOs. In its filing, Duke proposes to hire the Midwest Independent Transmission System Operator (MISO) as an Independent Entity (IE) for the purpose of performing certain OATT-related functions on the Duke transmission system. Duke also proposes to hire Potomac Economics, Ltd., as its independent monitor under a transmission monitoring plan.
Markets outside of RTOs raise continuing concerns regarding access to non-discriminatory and open access transmission service and markets. There are a number of possible approaches to address this situation. The optimum approach is to form or join an RTO compliant with Order No. 2000.
Another approach is for FERC to reexamine Order 888 (as the Commission is currently doing) and, in the process, strengthen its enforcement of open access provisions. A subset of this approach is to form an ITE.
There are now three such ITE proposals before the Commission which may serve as models for a generic ITE mechanism going forward. These proposals must be properly crafted from the outset. Otherwise, EPSA recommends that the Commission not move forward with such proposals but, instead, take another approach to address continuing concerns over non-discriminatory transmission service. Commission time and political capital should not be invested creating ITEs or other entities that are not capable – due to their structure or contractual arrangements -- of solving concerns over non-discriminatory open access transmission service.
EPSA prefers that transmission owners join RTOs. However, EPSA can support the creation of independent entities to serve as a step in the transition to well-functioning competitive wholesale markets if certain conditions are met, primarily that the ITE is truly independent in administering the transmission assets previously administered by the vertically integrated utility.
1. Any ITE Proposal Must Ensure that the ITE is Truly Independent
To be properly crafted, an ITE proposal must meet certain core principles of independence The ITE must be fully independent from the vertically-integrated transmission owning utility that retains it, and to be independent must have access to the data needed to make truly independent judgments as to the operation of the transmission system. If these independence principles are not clearly specified as part of the ITE proposal, the potential benefits of the proposal are eliminated and will represent an unacceptable, inferior alternative to the already inefficient existing system.
To date, the Commission has not provided sufficient policy guidance regarding the tools (contractual or otherwise) that would be essential design specifications required for a well-functioning independent entity to facilitate the transition to competitive wholesale electric markets in non-RTO areas. In the Entergy order, for example the Commission noted that because SPP was independent by the Commission “by virtue of its being an RTO,” it is not necessary for the Commission to make a further determination as to the independence of SPP’s independence as an ITE. EPSA believes that the Commission overlooked a critical distinction when it recognized SPP’s independence in the Entergy case, and urges the Commission to reconsider its analysis in this proceeding. The roles and relationship between an ITE and the vertically-integrated utility that hires it, in a non-RTO setting, present a radically different set of circumstances than when that same entity operates an RTO market. Specifically there are contractual terms and functions that the Commission must require in those non-RTO ITE situations to ensure that the ITE is truly independent of the transmission owner that hires it.
In Entergy’s case, as EPSA and others pointed out in the matter, SPP is not sufficiently independent as proposed by Entergy because of the structure of the contractual relationship, the collection and handling of the data which underpins the modeling and operation of the transmission system, and stakeholder participation.
EPSA urges the Commission in this and other similar matters to review the independence of the proposed ITE specifically in relation to the proposed contractual relationship with the transmission owner and without regard to the proposed ITE’s independence in another region with other transmission owners. In that regard, the Duke proposal provides the Commission with some measures by which the Commission can determine whether an acceptable level of independence has been achieved.
B. Duke IE Proposal
1. Contractual Arrangements
The Duke proposal contains contractual details that represent significant improvements over the Entergy proposal. For example, Entergy’s termination clause gives the transmission owner significant leeway to terminate the agreement with the ICT. Entergy has many options available to terminate the ICT. Such an approach implicitly gives Entergy undue influence over the ICT’s decisions and, hence, undermines its independence.
The Duke proposal, on the other hand, does not include termination clauses that undercut the IE’s independent authority, but allows termination only if instigated and supported by the Commission or by the independent entity itself. Therefore, EPSA urges the Commission to approve, as a matter of course for all ITE proposals, termination clause specifications that reflect the Duke proposal, and not that of Entergy.
2. Data Issues
The details regarding control and oversight of data inputs and protocols are crucial to ITE’s full and functional independence. In order for an ITE to be independent and ensure nondiscriminatory transmission access, it must also have exclusive authority to develop and implement all of the inputs and protocols used to determine which entities receive transmission service and the terms of that transmission service.
The role of data control and oversight is highlighted in the Entergy ICT proceeding. Entergy’s proposal retains its ability to develop the criteria and inputs used in evaluating transmission service requests (TSRs), while the ICT’s role appears limited to granting or denying the TSRs. The ICT cannot question or verify the data or inputs received from the company. This process does not give the ICT sufficient decision-making authority with respect to the criteria, inputs and methodology used in the calculations that determine decisions on which TSRs to grant or deny.
In contrast, the Duke proposal provides a more robust role for MISO as the IE, with specific proposed provisions that allow its IE to contact Duke and both obtain and verify any information needed regarding the assessment of TSRs. This approach is clearly more consistent with the concept of independence.
3. Stakeholder Participation
Duke proposes specific provisions allowing the IE to “create procedures under which it will seek and obtain comment and input from interested transmission customers, generator owners, load serving entities, or other market participants on an ongoing basis.” The IE will have responsibility for coordinating a stakeholder process that requires scheduled conference calls and meetings. In contrast, Entergy’s proposal has no such provisions. The proposal allows for stakeholder input only after an ICT audit of Entergy’s procedures and systems for evaluating transmission requests and transmission planning. Duke’s proposal allows for ongoing stakeholder review of existing and developing rules and protocols, while Entergy’s proposal only allows for after-the-fact stakeholder review.
Duke has also proposed a dispute resolution process that is superior to Entergy’s. Entergy’s proposal provides that market participants can file a Section 206 complaint against any actions the ICT has taken that violate Entergy’s public utility functions. Rather than an after-the-fact complaint process, Duke’s proposal would allow parties the opportunity to resolve potential problems before they occur, thus avoiding the need for Section 206 complaints. This process provides for more timely resolution of disputes and reduces the cost of litigation.