July 1, 2001
L.A. Loves a Loophole
There's no getting around it...
Reliability or Profit? Why Entergy Quit the Southwest Power Pool
ON OCT. 31, 1997, ENTERGY CORP. AND 16 OTHER MEMBERS
announced their intention to withdraw from the Southwest Power Pool regional reliability council and join the neighboring Southeastern Electric Reliability Council. The announcement shocked the SPP and its members, plus other industry observers and stakeholders.
While significant in number, the withdrawals do not necessarily signal widespread displeasure with SPP's initiatives and performance. Of the members leaving the SPP, nine indicated they were leaving on account of mergers, high costs or that their affiliates would still belong to the SPP. Five of the nine were Entergy operating companies. St. Joseph Power & Light Co. had announced its intention to withdraw in September, a month earlier. The potential financial uncertainty caused by Entergy's exit may have spooked the remaining six.
Events of this nature do not occur often in the electric power industry. They carry strategic implications (em both for utilities and for industry institutions, including the regional councils that make up the North American Electric Reliability Council, or NERC. They may also expose conflicts between utilities and regional councils. On the surface, such conflicts may appear benign, involving nominal issues such as trading patterns or degree of interconnection. Underneath it all, however, may lie more important issues, such as who will retain control over (or earn a profit from) the operation of electric transmission lines.
Prologue: NERC Strategy, Pool Politics
Recognizing the imminent arrival of open access, unbundling and competition, the senior industry executives who constitute the NERC leadership had already taken initiatives to encourage broader participation and set reliability, performance and monitoring standards with "teeth."
The apparent goal of NERC's strategies has been to place the organization and its regional councils in a meaningful position before policymakers become prescriptive about reliability issues in a restructured environment. But this goal has sent the regional councils on their own paths (em giving choices to utilities.
Some important NERC initiatives, with implications for the changes under way in the SPP, have required each region to establish either a security monitor, a security center, or an independent system operator to coordinate emergency operating procedures among multiple control areas. The three options differ in the amount of authority relinquished by the member utilities and control areas involved. The first option (em a security monitor (em would have utilities relinquish the least amount of control. The third option (em the ISO (em would find utilities relinquishing the greatest amount of control. The security center approach represents an intermediate point in the spectrum of delegating authority to a security coordinator.
As a result of these guidelines, SERC members opted to establish four security monitors using the infrastructures at Duke Power, Virginia Power, The Southern Company and the Tennessee Valley Authority. The SPP, on the other hand, began working toward a more concentrated approach by establishing a security center located at the SPP office in Little Rock, Ark. More recently, the SPP staff has been developing procedures and adding the staff and equipment needed to move towards the creation of an ISO.
However, even while NERC itself was advocating structural