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A Subtle but Clear Preference for ISOs

Fortnightly Magazine - March 1 2000

the corporate board of a transco, which must answer first to shareholders, the PJM Board adheres to a public interest standard, whatever the commercial interests of its members. Stakeholder concerns are channeled to the PJM Board through members' advisory committees, which have input into but cannot dictate a decisional outcome.

* Grid Management. PJM makes scheduling, redispatch and maintenance decisions independent of the commercial interests of members. PJM's reliance on locational marginal pricing eliminates any requirement to negotiate and manage redispatch with its generator members on a bilateral basis (though it does administer bilateral schedules in addition to a spot market).

Regarding transmission prices, PJM is the sole administrator of its open access tariff. It offers a balancing service. It has implemented a system of tradeable fixed transmission rights as a means of hedging congestion costs.

* Investment Incentives. PJM has primary responsibility for transmission planning in the PJM control area and is free to solve transmission constraints by building additional transmission or interconnecting new generation. To that end, PJM has implemented a queue system to handle interconnection of additional generation. Meanwhile, it enjoys clear authority to direct transmission owners to construct upgrades or additional facilities if necessary to accommodate such generation interconnections. - J.D.L.

1 Order No. 2000, FERC Docket No. RM99-2-000, issued Dec. 20, 1999 (hereafter, the "Final Rule").

2 ". . .[W]e do not propose to require or prohibit any one form of organization for RTOs or require or prohibit RTO ownership of transmission facilities. The characteristics and functions could be satisfied by different organizational forms, such as ISOs, transcos, combinations of the two, or even new organizational forms not yet discussed in the industry or proposed by the Commission." Final Rule (mimeo, p. 6).

3 See, e.g., Petition for Declaratory Order filed by Commonwealth Edison Company et al. at FERC in Docket No. EL00-25-000 on Dec. 13, 1999, seeking FERC's guidance as to an independent for-profit transmission company operating under the oversight of the Midwest Independent Transmission System Operator (hereafter "ComEd Petition," mimeo, p. 42).

4 See, e.g., Michaels, "The Governance of Transmission Operators," 20 Energy L. J. 234 (1999).

5 See, e.g., Michaels, op. cit. at 233-34; Curt Hébert, "The Quest for an Inventive Utility Regulatory Agenda," 19 Energy L. J. 1 (1998); Angle and Cannon, "Independent Transmission Companies: The For-Profit Alternative in Competitive Electric Markets," 19 Energy Law Journal 229 (1998); ComEd Petition, passim.

6 Hébert, op. cit. at 9.

7 Angle and Cannon, op cit. at 266. See also Final Rule (mimeo. p. 125). See also, ComEd petition, which contemplates operating performance incentives, congestion management incentives and expansion incentives.

8 Angle and Cannon, op. cit. at 264.

9 Pierce, Richard J., "Why FERC Must Mandate Efficiently Structured Regional ISOs - Now!" The Electricity Journal, January/February 1999, p. 50.

10 See, e.g., National Association of State Utility Consumer Advocates' Comments on Regional Transmission Organizations Notice of Proposed Rulemaking filed in FERC Docket No. RM99-2-000 on Aug. 26, 1999 (mimeo, p. 19).

11 See FERC Order on Proposed Disposition and Related Rate Filing issued Dec. 20, 1999