The Federal Energy Regulatory Commission (FERC) has agreed to set a hearing on the reasonableness of American Electric Power Co.'s (AEP) nonfirm, offpeak hourly rate for electric transmission...
MAPP, MISO & PJM: Three Regions Fight Over Wires, Prices and Profits
of the Primergy merger.)
Taken together, these events pose a test case for the FERC under the very worst set of facts: The commission must decide whether a private transco initiative is as good as a collaborative ISO effort, and do so in a case in which the private transco would own and control a critical transmission bottleneck.
Testifying in support of the Minnesota Power complaint, consultant Mark Frankena (now at Economists Inc. and the former deputy director for antitrust at the Federal Trade Commission) noted that "utilities in northern MAPP have no alternative to [the] use of NSP's transmission system to carry power to the East and, to a large extent, the South." He added that between May 12 and Oct. 31, 1998, NSP called for line loading relief on 70 occasions, of which 73 percent involved the TCEX and 20 percent involved the constrained interface between Minnesota and WUMS, the Wisconsin/Upper Michigan division of MAIN (Mid-America Interconnected Network).
For its part, NSP argues that its TLR curtailments of WEPCO transmission did not discriminate in favor of its own transmission: "In each instance this summer in which NSP curtailed WEPCO and was required to curtail native load by its [NSP's] open-access transmission tariff, NSP did so by curtailing native load transmission via redispatch. Thus, [we] complied with the open-access requirements without shedding [our own] firm customers."
As NSP points out, the FERC expressly approved that bifurcated strategy for NSP last summer.fn8 It adds that its strategy of TLR plus redispatch would pass muster under the FERC's December TLR order: "NSP has been doing since June 29, 1998, that which the commission ordered all other utilities to do by March 1, 1999."
The MISO Quandary: Like a Gas Pipeline?
The Midwest ISO case presents the FERC with another challenge: How to keep transmission tariffs low enough to avoid the sort of rate shock that led the Indego ISO to fail (when public power agencies balked at paying transmission rates four to seven times higher than under existing contracts), and yet provide the type of profit incentive needed to attract all transmission owners in a given region? The commission must solve this problem to avoid ISOs in which the members are noncontiguous. FERC commissioner William Massey often has called this phenomenon the "Swiss cheese" ISO.
Testifying on Dec. 4 for the Midwest ISO participants in support of the request for policy guidance on how the FERC might eventually rule, José Delgado, vice president of electric system operations for WEPCO, set out the problem:
"The 11.5 percent rate of return on equity filed in this proceeding is conservative when compared to state returns. ¼ I believe that sooner or later all transmission service will be unbundled from retail rates and provided through FERC-approved tariffs. If MISO rates are much lower than retail rates, the companies will face a significant reduction in earnings when they join the ISO."
Delgado noted that a MISO ROE discounted 100 basis points below the 12.2 percent ROE authorized by the Wisconsin Public Service Commission would imply a $1.2 million