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Senator Bayh Issues Strong Statement Supporting the Role of RTOs in Enhancing Electricity Reliability and AEP’s Integration into PJM Interconnection

Sen. Evan Bayh (D-Ind.) has issued a strongly worded opening statement in support of the beneficial role that regional transmission organizations (RTOs) have in maintaining reliability and security of the nation’s interstate electric transmission system. He entered it into the official hearing transcript and record for the Feb. 24 Senate Energy and Natural Resources Committee hearing on the “Reliability of the Nation's Electricity Grid.”

In addition to drawing the connection between reliability, better coordination and “seamless” RTOs, Sen. Bayh also discussed how and why the integration of American Electric Power’s (AEP) transmission system into PJM will improve reliability. The entire statement is reprinted below:

Mr. Chairman, thank you for holding this hearing on the reliability of our electric grid. The August 14th blackout signaled that much more needs to be done to enhance the reliability of our transmission grid. However, I would like to caution my colleagues and others who are quick to jump on the reliability bandwagon as a way of hindering the further formation of [RTOs]. While the final blackout report from the U.S.-Canada Power System Outage Task Force has yet to be released, I read with interest the interim report which stated that “reactive” power produced by independent power operators was not the cause of the massive blackout, which stretched from the Great Lakes to the Atlantic Ocean. The Task Force points out that lack of coordination seems to be the larger culprit—coordination that will only be enhanced with seamless [RTOs].

RTOs were formed to help us move to a more competitive electricity market, but as the economy grew, they played an increasingly important role in providing coordination of electricity over existing transmission lines. RTOs will continue to play an important role in ensuring that proper coordination occurs between and among utilities and independent providers of electricity. In fact, last week, in my home state, the Midwest Independent System Operator (MISO) opened its doors to demonstrate upgrades made to the organization since the August blackout—upgrades that will help to deter future communication failures that certainly played a role in the spread of what otherwise may have been [a] smaller blackout. However, if other states intervene to prevent [AEP] from integrating into that communication system through participation in PJM, its massive presence in the Midwest will impede the progress made by MISO to date, creating a gaping hole in the coordination in the Midwest.

Furthermore, states should recognize that if RTOs evolve in a Swiss cheese fashion, they cannot fulfill the requirement to increase reliability as the use of the electricity grid continues to grow. In fact, several state public utility commissions recently filed comments to FERC supporting FERC’s decision to move AEP into the PJM RTO.

The Indiana Utility Regulatory Commission noted that past rulings regarding AEP’s existing makeup were dependent on its inclusion in these regional organizations. Indiana and the six other commissions that joined them in the filing pointed out the compelling economic and reliability issues in this matter are regional and multi-regional in scope and thus require regional and multi-regional solutions.

The economic benefits of wholesale electricity markets are real. A 2001 Department of Energy study of the nation’s transmission grid confirms that wholesale electricity markets save consumers nearly $13 billion per year. In testimony filed before FERC on the AEP case, Tabors Caramanis & Associates stated that in 2005, AEP integration into the PJM market would save consumers in MISO and PJM approximately $214 million in that year alone.

I urge my colleagues to recognize the benefits of RTOs, the role they play in cost savings and reliability improvements to consumers as well as the important role that FERC can play in ensuring that they are properly formed.
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For more information on the Feb. 24 hearing, refer to the Senate Energy & Natural Resources Committee Web site at http://energy.senate.gov/. For more information, generally, on RTOs, electric transmission system reliability, or the AEP-PJM case at the Federal Energy Regulatory Commission, contact EPSA’s Mark Bennett at mbennett@epsa.org, or call (202) 628-8200.