July 1, 2001
L.A. Loves a Loophole
There's no getting around it...
Exposing Myths on what the FERC Really Wants
Read the RTO Rule. You'll see that it paves the way for transcos.
On Dec. 20, the Federal Energy Regulatory Commission hit the streets (both Wall and Main) with Order 2000, its rule on regional transmission organizations (RTOs). Ever since, utilities, investors and their advisers have been poring through the 727 pages of the document. They want to know, "What does the FERC really want?"
The question is not simply academic. On March 1 in Cincinnati, the FERC will open the first of five collaborative workshops to explore the RTO Rule and help the industry respond. Other workshops will follow: in Philadelphia (March 15-16), Las Vegas (March 23-24), Kansas City (March 29-30) and Atlanta (April 5-6).
Nevertheless, even as we look forward to the collaborative process, some in the industry with an ax to grind have already jumped the gun, offering their own interpretations of the RTO Rule and what the commission wants and intends, with varying degrees of accuracy.
Winston Churchill once wrote that a lie travels halfway around the world before the truth can pull on a boot. Myths move fast, too. Yet we hope to help the industry start walking along the proper path.
In this article, we touch on some of the major points of contention over Order 2000 - myths we have heard about the RTO Rule and the FERC's expectations. To do that, we make a reasoned effort to debunk the top 10 myths about Order 2000 (giving page citations to the original text to buttress our points). We list the myths in descending order of the degree of currency attained by each. Beyond that, we rely only on the power of sunlight - "the best disinfectant," as Justice Brandeis would say.
Myth No. 1: Volunteer ¼ or Else!
Reality: or else the market will pass you by
Most of the initial discussion about Order 2000 pertained to whether the FERC "mandated" that utilities must join RTOs, or whether it "sort of" mandated, or maybe "will mandate."
Indeed, the question of voluntary or mandatory approach lay at the heart of the debate at the FERC over the RTO Rule. Choose "voluntary" and you must line the road to RTOs with incentives and flexibility. Choose "mandatory" and you need only point to the destination. The FERC would then start to think about so-called "second generation" issues.
We understand that people involved in policy or politics like to choose winners and losers. "Spin" is "in." We know the industry likes to spend a lot of energy on the question, "Who won?" In fact, in a political city in an election year, the "losers" likely will refuse to concede.
Nevertheless, the regulated utilities want to do what FERC expects of them. On that score, the FERC has a record of speaking from behind the curtain. Recall the efforts of a majority in the late 1980s through the mid-1990s to enact open access through mergers and market-based rates.
In the context of the actual rule, however, the debate on whether a mandate is present amounts to a sideshow at a