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MAPP, MISO & PJM: Three Regions Fight Over Wires, Prices and Profits

Fortnightly Magazine - February 1 1999

will not receive full recovery of those costs from the ISO during the six-year transition period. ¼ [S]tate commissions may be reluctant to burden their ratepayers with the costs of facilities which largely benefit customers in other states.

Q.

Doesn't Cinergy face these risks today?

A.

Not to the same degree. Cinergy [is] not obligated under its [current] transmission tariff to construct transmission facilities to relieve problems arising on other transmission systems.

Q.

How should these risks be considered in establishing a return on equity for the Midwest ISO?

A.

The Midwest ISO filing includes an 11.5 percent return on equity. ¼ [T]his was the return agreed to by the diverse group which negotiated the Midwest ISO documents.

Q.

Has experience shown a need to provide some reward for joining

an ISO?

A.

Yes. ¼ The ISOs that are up and running today are from tight power pools or California, which has state

legislation. ¼ ISO efforts in areas without tight pools have had problems. For example, Indego in the Northwest collapsed after lengthy negotiations. MAPP recently voted down an ISO proposal.

Q.

Is a reasonable return important for the Midwest ISO?

A.

It is of particular importance. ¼ Many Midwestern utilities remain

on the fence.

1 The term "lollipop pricing" refers to the two-part transmission tariff that would have applied if the members of MAPP had voted to approve formation of an ISO. The "pop" element sets a price for service in the zone where the load is located, at that zone's net revenue requirement. The "stick" portion denotes the price for service required to transmit power to the "pop," or outside of MAPP, based on a cost-based formula for firm service (giving higher weight to high-voltage transmission lines) and a megawatt-mile, distance-based formula for nonfirm service.

2 Notice of Intent to Consult Under Sec. 202(a), FERC Docket No. RM99-2-000, Nov. 24, 1998.

3 Complaint and Motion for an Order to Show Cause, EL99-20-000, Dec. 21, 1998.

4 Docket No. EL98-52-000, Dec. 16, 1998, 85 FERC ¶61,353.

5 See Direct Testimony of Staff witness David R. Penkrot, filed in FERC Docket OA97-237, calculating a weighted average return on equity for NEPOOL members of 7.88 percent, and recommending an 8.6 percent ROE for the NEPOOL ISO. (According to answer filed in the Midwest ISO case by the Ohio Consumers' Counsel, the Indiana Utility Consumer Counselor and the Pennsylvania Consumer Advocate.)

6 See Complaint for Modification of PJM Open Access Tariff, filed Nov. 4, 1998; and Request for Leave to File Answer, filed Dec. 21, 1998, FERC Docket EL99-9-000.

7 FERC Docket No. EL99-12-000, filed Nov. 24, 1998.

8 See No. Sts. Pwr. Co., June 29, 1998, 83 FERC ¶61,338.

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