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Fortnightly Magazine - March 1 2000

would be hard to imagine a pricing scheme better equipped to encourage inefficient use of transmission facilities, overbuilding of transmission facilities and inefficient location of generation than one which actually results in lower total charges for longer shipments."

Meanwhile, the MISO participants argued that political realities left them with no other choice than to compromise with the low-cost utilities:

"On the other side of this issue were state regulators and utilities from 'low-cost' states, such as Kentucky, that currently enjoy relatively low-cost delivered power. ¼ [They] often are concerned about whether the costs of ISO participation exceed the benefits.

"In this case, adding the utilities from Kentucky to the Midwest ISO extends the ISO's boundaries to interfaces with the Tennessee Valley Administration, which is an additional source of lower-cost power. To resolve this issue, it was agreed that bundled load not served under the ISO tariff would not be charged for the ISO's costs."

MISO saw the fight as just a selfish request from the Michigan utility:

"Consumers Energy dresses up its request as a complaint about a rate pancake. [Instead] it's all about the revenue distribution among the transmission-owner- members of the Midwest ISO."

The ISO continued, "The MISO agreement provides that revenues collected ¼ for network transmission service shall be fully distributed to the host zone. ¼ By contrast, for point-to-point transactions ¼ it was agreed that revenues would be distributed 50 percent on transmission investment and 50 percent on power flows. Therefore, if Consumers Energy joined the Midwest ISO ¼ and could elect network service for its bundled load, it would be able to keep all the revenues."

COSTS ALSO MATTER OUT WEST, where the Mountain West Independent System Administrator (ISA) won approval from the FERC on Jan. 27 (Docket No. ER99-3719, 90 FERC ¶61,067), but now must raise seed money to get started and then figure out how to assure funding for the long term.

As late as Dec. 21, Mountain West had appeared to be going belly-up. Its interim board of directors (a stakeholder board that would be replaced eventually with an RTO-qualifying nonstakeholder board) had voted on Dec. 15 to suspend all activities until the ISA could win approval from the FERC or gain a source of funding for startup costs.

On Feb. 10, when I spoke with Mountain West board member Duane Nelson, from Sierra Pacific Power, the situation seemed no less muddled. Nelson said no source had come forward for seed money. He added that long-term funding was iffy as well, since Nevada's electric restructuring law imposed a price cap on the state's utilities and yet did not authorize securitization of stranded costs. That, Nelson said, left few options for reducing costs and making room under the price cap to support the ISA for the longer term.

Nelson suggested the next step was up to the state PUC: "they have to weigh in on this." One other idea would have the California ISO stepping in to help, but that appeared unlikely.

Kellan Fluckiger, vice president of operations for the California ISO, said his agency