Sweating the Deadline: What Consolidation Means for Traders and Vendors
Interviews with software middlemen.
Partner, Utility Practice Group
Q: What sort of work have you been doing with RTOs [regional transmission organizations]?
Oliva: We've been working in four basic areas:  Business strategy,  market design and monitoring,  budgeting and program management, and  outsourcing of various financial back-office and settlement functions.
Q: What do you think about a forced marriage of RTOs in the Northeast and Southeast? Can they still meet the December deadline imposed by the FERC [Federal Energy Regulatory Commission] for RTO start-up?
Oliva: I seriously doubt that it [agreement on RTO structure] can be done now in 45 or 60 or even 90 days. I don't see why the FERC cannot extend the deadline. In fact, I think we may have lost ground in the short run, by forcing New England to halt its work on its proposed standard market design [SMD] and agree to mediation on the PJM version. There is clearly some backtracking that will occur now.
Q: How will this "backtracking" affect software development?
Oliva: To answer that, I've got to explain to you that there's certain process involved for the RTO in hiring vendors and building software. First of all, you need regulatory approval. How many RTOs are there that really have specific approval from the FERC over a market design? In the Northeast, for instance, the problem is identifying who the party is who will engage the vendors. Let's assume that this new Northeast RTO forms and takes on the basic market design and structure of PJM. But if there is to be some designation of PJM as the spearhead party for software contracting, when does that designation actually occur?
Q: At the "seams" conference on regional coordination at the FERC back in June, we heard talk that new deadlines could upset contracts with software vendors. How do you see it?
Oliva: If I'm a software vendor working in New England-even if I've got a contract-I would be concerned now whether I can even continue work or else recover damages for projects that don't proceed to completion.
Q. Even if the industry consolidates into just four RTO's-as the FERC wants-the regions likely will adopt different rules. Will that stifle a true nationwide electricity market?
Oliva. No, and here's why. Think about the gas industry. The gas pipelines are better off today than they were before Order 636, because they now have unbundled gas transmission from the commodity business and have focused on creating value in an entirely new business-the pipes-only business. This process will also take place in the electric industry, and should yield similar benefits.
Q. In the upper Midwest and the Great Plains, they've talked of forming a "Crescent Moon" RTO to protect them from higher costs in case they're forced to join a larger RTO. How will they fare?
Oliva: When you have areas of high-cost transmission that must span long distances to serve small loads, yes, you could have some negative effects in terms of cost shifting. But, remember that transmission represents only a