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Exposing Myths on what the FERC Really Wants

Fortnightly Magazine - March 1 2000

favored child - that an ISO need only call itself an RTO to become one in fact and law.

In this school of thought, at worst an ISO need only make minimal changes to win certification. Yet once advocates of the ISO digest Order 2000 more closely, they must come to a different conclusion.

The advocates see three reasons to believe that Order 2000 enshrines existing ISOs as RTOs. First, the "scope" section of the Preamble lists two of the considerations in defining RTO boundaries as (a) existing reliability councils and (b) control areas. Surely that must include ISOs, especially since Order 2000 "builds on" Order No. 888 and its ISO principles. Second, the FERC uses the term RTO to encompass ISOs and transcos, meaning ISOs "in their present state." Third, the FERC "would not dare" undo the work that went into forming the ISOs the agency approved.

In fact, a complete review of the Preamble belies the first two claims. The filing requirements for ISOs impose on these institutions the burden to explain how they meet the 12 RTO characteristics and functions and, if not, how they will change to meet that goal. Except for the three-month grace period added to the ISOs filing deadline, Order 2000 imposes the same requirements on all utilities.

The section of the Preamble on scope says that the RTO must encompass a natural trading area and be able to perform the functions Order No. 2000 assigns. The FERC also said that number of customers and size of the load count more than geography in assessing the scope of an RTO. (pp. 259-60.) Can single-state ISOs fulfill these requirements? Can those multi-state ISOs that have cobbled together many trading areas or leave "holes" in their service territories measure up? That remains for FERC to determine in 2001.

And what of all that work in forming ISOs? Would the FERC simply ignore that? As to this argument, we say, "try us and find out."

Myth No. 7: Future ISOs Will Have It Easier

Reality: don't bet on it

Some say that utilities should have an easier time becoming ISOs rather than transcos, because the FERC has adopted rules for transcos on passive and active ownership, but nothing comparable for ISOs. They note that the commission never required divestiture of transmission. It only required operational separation of transmission, and that's what an ISO represents.

In reality, however, Order 2000 implies something different. It declares that the success of the RTO Rule depends on the viability of a stand-alone transmission business. Does an ISO represent a stand-alone transmission business? The existing ones do not, at least in our view.

Moreover, it may turn out that an ISO will have more difficulty with the test of an independent board than a transco might have with rules on passive and active ownership.

The section in the Preamble after the discussion on passive and active ownership deals with governing boards for ISOs. The FERC requires independence from stakeholders. Yet the commission here declined to offer many details on what constitutes independence, unlike