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Exposing Myths on what the FERC Really Wants

Fortnightly Magazine - March 1 2000

interest in a neighboring company (to provide transmission services) in order to expand the RTO, the FERC will not consider the owner-transco a market participant. Moreover, in many places (e.g., p. 505) the Preamble mentions that the success of Order 2000 depends on the viability of a stand-alone transmission business, a label that fits transcos (we would say better than ISOs).

Third, the Preamble states that FERC encourages distribution companies in a market, entities that provide the local version of transmission service, to purchase the transmission grid. If some favoritism may result (if some but not all companies become the transmission owners), the commission will disallow the arrangement, but the burden will lie on the agency. A pure transmission company does not raise such issues. (pp. 198-99.) Also, the Preamble excludes minority interests in divested generators from the definition of market participant. (pp. 200-01.) All the more, companies that own no generation can safely become RTOs. Finally, Order 2000 states that true suppliers of last resort (the companies that sell under compulsion of state law and do not compete) can expect an exemption from market participant status. Some of these suppliers of last resort, including incumbent utilities, will surely own transmission. (p. 200.)

Transcos Too Small? The second, less-credible variation holds that transcos will cover "too small" an area and will have to exist within ISOs. Further, to fulfill the RTO characteristic of "operational authority," the ISO supposedly will have to operate the grid. All agree that if Order 2000 forces a transco to surrender operation of the grid to an ISO, then the FERC will have hobbled transcos. Fortunately, these interpretations have no merit.

One should pause before assuming that a transco must start out as "too small," in contrast to an ISO. We remind readers that the Alliance Transmission Co., which the FERC has conditionally approved, subject to further information, encompasses an area of 43,000 square miles in nine states. The Alliance eclipses the National Grid of England by a factor of six. The United States has large holding companies, such as Entergy, that have indicated a willingness to become transcos. We would hardly consider them "too small," especially if they combine with large neighboring systems.

Finally, a transco within an ISO would be the one to operate the grid. Since the transco has no reason to discriminate, it does not necessarily need an ISO. In fact, in most cases, an ISO, with its committees and bureaucracy, would hinder efficiency. A transco could also coordinate with neighboring systems. The profit motive drives shipping lines, for example, to coordinate container cargoes with railroads and trucks. The ISO might collect information and otherwise support the transco, but should not operate the grid belonging to the transco. Contrary to claims we heard, no "tension" exists between the characteristics of regional scope and operational authority.

Myth No. 6: Today's ISOs Have a Free Ticket

Reality: Not Until Proven

The next two myths offer a variation of the last three. Rather than say the FERC has made transcos impossible, this argument sees ISOs as the