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Fortnightly Magazine - February 15 2000

the Alliance RTO outflanks MISO on both the east and the west. That means that generators within MISO must wheel through Alliance to reach capacity-short markets in the Northeast, Southeast or Southwest. By contrast, AEP generation would enjoy a straight shot, with one less wheel. That had led MISO to question the testimony of AEP witness Dr. William Hieronymus (PHB Hagler Bailly), on how the merger would not increase concentration in generation markets to the East.

"This point begs the relevant question of whether the Alliance will bar firms to the west of AEP from reaching eastern destination markets." And MISO continued:

"At most locations Alliance is merely one and occasionally two systems thick. Alliance is a wall that isolates the Midwest ISO and southern utilities from PJM, New York and New England."

But Lon Bouknight fired right back, in a brief he filed for AEP:

"The incentive to force AEP into the Midwest ISO is crystal clear. ¼ They [MISO participants] would benefit economically from forcing AEP into the Midwest ISO, because they would then pay lower transmission rates over AEP's system. ¼ [That] would increase [their] profits ¼ from their generation sales to the East.

"What is at stake in this disagreement," added Bouknight, "is the relative margins of the parties on sales of low-cost coal energy into eastern markets, not the health of the competitive process."

The FERC staff sides with AEP. It has put great stock in a stipulation it signed last year with the two merger applicants. In that deal, AEP promised by year-end 2000 (with a possible 75-day extension) to transfer to an approved RTO all of the functions it provides related to transmission service, security and control area operation. Recall how MISO was formed to allow participants to continue to operate their individual control areas. Now observe how the FERC staff seems ever so slightly to favor Alliance over MISO for AEP membership. Here I'm quoting the staff brief filed

on Dec. 28, after the commission had released its RTO

and Alliance orders:

"No other utility in the country has taken this step [transfer of grid functions] in the context of a merger.

Once the transfer is complete, AEP will have no control

over calculating and posting ATC [available transmission capacity], managing the OASIS site, performing congestion management ¼ and other functions that present the potential for manipulation."

The staff observed how an RTO must be "especially vigilant" that transmission customers that continue to operate control areas cannot discriminate against others: "[I]t is important for the RTO that receives AEP's transmission facilities to have control area responsibility."

IF THE FERC MAKES MY PREDICTION COME TRUE, IT WILL EXPOSE A FAILED STRATEGY on the part of Enron, and trade groups like the American Public Power Association (APPA), the Electricity Consumers Resource Council (ELCON) and the National Rural Electric Cooperative Association (NRECA). In essence, those groups have tried to use the merger case to lay collateral attacks against the FERC's rubber-stamp merger policy. APPA and NRECA have repeated calls for a merger moratorium. Enron again opposes the