[BETA] Fortnightly

Hoecker, Trebing see advantages in economies of scale.

Will New York's proposed independent system operator fall victim to the FERC's evolving RTO process?

"It has some conceivable drawbacks," FERC Chairman James J. Hoecker told attendees at the 30th Annual Institute of Public Utilities Conference. "One is that it's a single-state ISO and in the final analysis, regional transmission organizations probably need to cover broader geographical areas."

Hoecker used the forum at the Dec. 9-11 conference in Williamsburg, Va., to promote the commission's federal-state effort to develop guidelines for RTOs. The Federal Energy Regulatory Commission issued a Notice of Intent to consult with states after U.S. Department of Energy Secretary Bill Richardson gave the commission authority under Section 202(a) of the Federal Power Act to partition the nation into regional grid reliability districts and regional transmission organizations.

Hoecker also took issue with the title of the conference - "Competition in Crisis: Where Are Network Industries Heading?" - and pundits who insist electricity restructuring has failed.

"The argument reflects yet another kind of impatience with the current state of affairs," he said. "And maybe this is why the Institute called the conference 'Competition in Crisis.' My view of the situation is not dismal."

While markets may feel chaotic, they offer great potential for public good, notably innovation and technology, the chairman said. For state regulators, competition means markets are expanding. Hoecker quoted National Association of Regulatory Utility Commissioners president Jim Sullivan: "'No longer can we sit behind our respective desks in our respective offices in our respective states and fully serve our respective constituents. Too many changes, too many influences governing our destinies now occur outside our state lines.'"

Hoecker then offered his own perspective: "I believe the most important thing that we as regulators can do to bring lower electricity rates to all Americans is to ensure that competition is as vibrant as it can be. We can do so," he added, "not by dictating all of the outcomes from our comfortable precincts in Washington, but ¼ by attending to those key factors that will determine the ability of market participants to fashion their own commercial solutions."

He said that means addressing market structure, the conduct of market participants and the performance of the market itself. Transmission planning, for instance, built on a regional basis, can minimize cost and maximize system efficiencies. Transmission congestion can be managed over a larger area.

He cautioned that Section 202(a) is not a silver bullet. "One could not promote RTOs based simply on that provision," he said. "Any inquiry into RTOs will require us to plumb the depths of all our authority to ensure a non-discriminatory electricity marketplace."

Inevitable questions FERC will face, he said, include:

How large can a regional control area be?

How do you get utilities to join an RTO?

What role do state commissions play?

"Voluntary industry initiatives in this area are both welcome and necessary," the FERC chairman said. "I see no reason to resort to regulatory sticks when strategic and economic necessity or perhaps even a few carrots will get the