Public Utilities Reports

PUR Guide 2012 Fully Updated Version

Available NOW!
PUR Guide

This comprehensive self-study certification course is designed to teach the novice or pro everything they need to understand and succeed in every phase of the public utilities business.

Order Now

Exposing Myths on what the FERC Really Wants

Fortnightly Magazine - March 1 2000

the FERC stated, "it would be acceptable for market participants to develop passive ownership arrangements that are purely financial." (p. 213.) Such arrangements allow for passive owners to dissolve the enterprise in cases of default, at least according to SEC opinion letters. Order 2000 also indicates that purely financial arrangements "could" gain exemption from audits of independence, assuming that the FERC will adopt that requirement after reviewing comments on rehearing. (p. 211, and footnote 304.)

Myth No. 4: Active Owners Face "Absolute Limits"

Reality: Except in Certain Cases

Propagators of this myth point to the safe harbors, presumptions and (in one case) the benchmark on forms of voting ownership, as if the FERC intended to set ceilings.

In reality, the FERC set a "safe harbor" of 5 percent on individual market participants, but said it would allow higher percentages in individual cases, as long as the higher amount would still fall below the level that would confer operating control. (pp. 218-21.)

Also, while Order 2000 set a "sunset" date of five years for active ownership in RTOs, it allows an extension if the request meets the independence standards and the public interest. (p. 221.) Order 2000 set a "benchmark" of 15 percent for classes of market participants, but allowed parties to argue for higher or lower ratios in individual cases. (p. 222.)

Myth No. 5: Transcos Can't Function

Reality: Transcos can thrive

This myth comes in two versions. One says that the FERC's own rule makes make it illegal for transcos to form. The other says that even if transcos do form, they will prove too small to make it on their own, and so must morph into ISOs. Here we debunk each myth in turn.

Transcos Illegal? The first and more credible myth sounds like Joseph Heller's "Catch 22." It arises from the definition of "market participant" contained in Section 35.3499(b)(2) of the regulatory text.

The confusion stems from the language in that section that refers to an entity that "provides transmission service" to an RTO as a "market participant." Some say that a transco itself provides transmission services, and so will become a market participant in its own right, subject to the restrictions on active ownership. That would mean that a transco could not form.

This argument may seem airtight, but here we refute it on three levels.

First, consider which party actually deals with customers when transmission services are provided, and which does not. The language in the definition reads, "transmission services to an RTO." (Emphasis added). That would exclude a transco operating as an RTO, since it would sell transmission to customers, not to an RTO. By contrast, however, when an ISO becomes an RTO, the ISO deals with customers. Any integrated utility within that ISO "provides transmission services to an RTO." And, if that weren't enough, the definition adds in the "unless" clause that if the FERC finds no conflict of economic interests, transmission providers will not fall under the category of market participant.

Second, the Preamble states in footnote 295 that if a transco acquires an