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New Analysis

The ISO forges ahead, with or without its members.
Fortnightly Magazine - February 15 2001

fault with having a single Midwest RTO." In fact, he added that one RTO is the natural evolution of the matter, but that the disagreement really was over how much molding FERC should do.

So the parties have one month to hammer out an agreement, despite the Jan. 8 notice by Dynegy to FERC that it had negotiated an agreement for Illinois Power to join the Alliance group.

In the Dynegy case, the issue appeared to turn on whether Dynegy's takeover of Illinois Power, completed after the utility had joined MISO, should be treated as a change of ownership of transmission facilities sufficient to trigger a "contractual right" to allow Dynegy to pull its subsidiary from the ISO. Taking the opposite view was Ohio consumers' counsel Robert Tongren, protesting on behalf of the National Association of State Utility Consumer Advocates:

"It is true that the Midwest ISO transmission owners, including Illinois Power, attempted to give themselves a contractual right of withdrawal. The commission, however, wisely rejected the notion that transmission owners should have the right to withdraw from an RTO, even one they had joined voluntarily."

Another important question was whether the ultimate fate of MISO should play a part in any decision by the FERC on any single member request to withdraw.

On that score, Dynegy and Illinois Power urged that any decision in their case should proceed in isolation. Illinois Power drew an analogy between its withdrawal from MISO and a run-of-the-mill termination of a transmission service agreement or wholesale requirements contract. But others disagreed, such as attorney Samuel Randazzo, arguing on behalf of the Coalition of Midwest Transmission Customers:

"The commission's disposition of Illinois Power's attempt to withdraw from MISO affects Order 2000, MISO's long-term vitality and, most importantly, the desired end-result of truly competitive electric markets in the Midwest."

In Search of Funds

Back at the ISO, the subject turned to finances, internal structure, and sustaining the organization.

As the would-be defectors announced their intentions, the credit rating companies Standard & Poor's and Moody's downgraded their credit outlooks on MISO's bonds from stable to negative. The key to raising the ratings, they said, would be the FERC's decision on whether to allow the withdrawals.

On Dec. 15, however, MISO gave notice that it wanted to return to the capital markets, saying that by the end of the first quarter of 2001 it would "exhaust" the funds it raised back in June 1, 2000 from an issuance of $100 million in 8.75 percent senior notes (rated triple-B+)—the first half of a planned, two-stage $200 million financing. (The FERC had OK'd the first $100 million tranche back on May 4, but not the second. .)

MISO said it was working with Wall Street advisors, but that Merrill Lynch had advised it that before the second bond issue could proceed, the market would require the FERC to acknowledge that departing MISO members would continue to be obligated to pay their allocated share of debt, plus any premium resulting from calling that debt that MISO had incurred to fund startup costs. MISO