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Electric Transmission: Do State Regulators Still Have a Voice?

Fortnightly Magazine - November 15 1999

on RTEs with those issued by the FERC." Case No. PUE99-349, May 26, 1999 (Va.S.C.C.).

This integration of state and federal RTE/RTO rules will not come easy. For proof, consider a situation in which a state commission is asked to approve construction of transmission facilities that will allow an exempt wholesale generator to connect to the grid. Then listen to these RTO comments filed by the New England Conference of Public Utilities Commissioners Inc.

"In the past, findings of necessity for such a connection were based on a finding of economic need for the regulated generation facility to serve native load. [But] in the current environment, new generators may be unregulated, for-profit merchant facilities whose customers may or may not reside within the state in which transmission facilities must be constructed. Unlike the situation posed by utility generation, there is no guarantee that the [merchant] generator will be successful, or [that] it will continue to operate long enough to justify the construction of transmission lines purposely built to bring that generator on line."

The New England commissioners ask how a state would use its eminent domain authority in such a case.

And even if an RTO helps to identify and manage transmission constraints, making congestion costs more transparent, the problem will not go away. The New England commissioners explain:

"Congestion-based costs that are external, from a state's point of view, may increase the hurdle for state authorities that are required by law to show how the proposed addition [to the grid] benefits the state. In such a situation, customers in one state will pay higher generation prices than those in the other. A state siting board in the high-cost state may be able to justify construction of transmission in order to lower generation cost, but how does the [other] state ¼ justify the transmission expansion to its residents?"

These questions should help show why the state PUCs now appear energized though divided in their comments on the FERC's RTO initiative.

The Five Factions

The state PUCs have split into five factions in their comments. These factions are defined according to philosophy, but they also tend to coincide roughly (despite some outliers) with basic geographic regions: Northeast, Midwest, Southeast, West and Texas.

The Northeast. State PUCs from the Northeast tend to urge the FERC to grandfather the New York, New England and PJM ISOs, so they won't need to file compliance documents by the deadlines given in the RTO NOPR. PUCs in this region appear wary of suggestions that the three ISOs might prove too small to satisfy the FERC's proposed RTO characteristics for size and scope.

The New York Public Service Commission sums up the mood: "It is not clear that merely combining two or all three of the northeastern ISOs would necessarily make sense economically or from an engineering point of view."

New England PUCs agree: "The existing boundaries of the ISO New England and the New York ISO mirror both the physical characteristics of their respective transmission networks and political boundaries. ¼ Adding to the size or complexity of ISO