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The Rules of the Grid: Transmission Policy and Motives Gehind It

Making sense of RTO Week, the mediation talks, and FERC's promised new rulemaking.
Fortnightly Magazine - December 2001

the costs of operating their transmission assets, plus a return on their investment.

So a new NOPR from FERC might be just the ticket. By nailing down a more detailed set of marching orders for RTOs as a backstop, consumer groups and state regulators might prove more willing to trust transmission owners with the job of selecting the RTO board. Or the transmission owners might prove more willing to trust their assets to a board chosen by someone else.

What's at stake? It's not only the grid, but the energy market as well. The industry has come to see RTOs as more than just an air traffic controller for the power lines. It now sees RTO governance and structure as the foundation stone for retail as the very foundation for retail competition in electricity.

Listen to Mark D. Kleinginna, energy director at Ormet Corp., which operates a single plant in Hannibal, Ohio, that consumes 4,500 gigawatt-hours of electricity each year, as he described his predicament on the first morning of RTO Week:

"PJM is the most liquid hub in the world, [but] it doesn't do me a lick of good. ... The rules aren't standardized ... I don't know the rules of the game."

This lack of standard rules worries Harvard Professor William Hogan, widely seen as the godfather of much of the PJM ISO's market design. If left to him, he would likely mandate a PJM-style structure for all RTOs. Without that, he fears a California-style catastrophe in other regions across the country, as he warned FERC at RTO Week:

"We're in the worst of all possible worlds. ... We've opened up, we've given a lot of people choice ... yet we don't have the mechanism to make that system actually work ..."

Hogan challenged Wood either to move ahead or put the toothpaste back in the tube:

"If you're not going to go forward and create competitive markets and put in a reasonable standard market design, then you'd better tell us how to go back to where we were before. And frankly, I've been trying to think about that. How do you go back? I don't know."

But Pat Wood has faith in his plan.

"Save your brains," he told Hogan. "We're going forward. We're not going back."

The Northeast Mediation: Each Region for Itself

Judge Young's "Business Plan" for building a single combined Northeast RTO presented various differing design alternatives for corporate governance and running an energy market-plus timetables and deadlines for completion of key milestones for each plan option, giving his report the look of a strategic planning "action plan"-but in reality the Northeast mediation talks were less about timetables and more about which region or industry sector should control the process.

Speaking for FPL Energy and Sithe Power Marketing, lawyers John Moot and John Estes, from Skadden, Arps, Slate, Meagher & Flom (Washington, D.C. office), painted a picture of doubt and mistrust:

"It was clear from the outset," they said, that "a large number of mediation participants opposed the formation of a single Northeast RTO. It is