[BETA] Fortnightly

What can we learn from its failure?

That the end of Alliance Company's RTO dreams came swiftly is clear. Whether the denial of regional transmission organization (RTO) status to Alliance means anything outside the Midwest is anything but.

Lurking in the shadows of the Federal Energy Regulatory Commission's (FERC) decision to crown the Midwest Independent Transmission System Operator (MISO) as the RTO for the Midwest is PJM Interconnection. About a month after FERC's decision, PJM and MISO announced plans to form a single energy market. And just prior to that, PJM submitted its application to be the Independent System Administrator for SeTrans, a proposed Southeast RTO.

Strangely enough, Alliance's loss may just turn out to be PJM's gain.

A Reversal of Fortune

When Alliance received its fifth conditional RTO approval in two years from FERC last July, its future looked rosy. It stood poised to be the first for-profit transmission company (transco) with outside investment that would be approved by FERC. Then FERC Chairman Curt Hébert stepped down in August, and was succeeded by Chairman Pat Wood III.

Wood began pushing the idea of four RTOs for the nation. Alliance, whose control area wanders in a curve from Arkansas north to Michigan, then south through Ohio and into Virginia (), hardly fit into the geographic mold that FERC seemed to be favoring. But it wasn't until November, when Wood openly questioned the proper role of a transco in RTOs at a FERC meeting, that Alliance began to suspect its RTO bid was in serious jeopardy, according to Elizabeth Moler, senior vice-president, government affairs and policy at Exelon Corp., who represents Alliance. The company was concerned enough to file papers with FERC, responding to Wood's comments.

It was to no avail. On Dec. 19, the commission rejected Alliance's application for RTO status, ruling that the company lacked sufficient geographic scope to exist as an RTO, and directing Alliance to explore how it could operate as a transco under the umbrella of MISO.

Mixed Market Signals

While Alliance is, according to Moler, "very disappointed," others in the industry think FERC sent the right signal. Reem J. Fahey, director, market policy, Edison Mission Marketing & Trading, says that from the perspective of competitive markets, FERC's decision is a great outcome. With the decision, FERC had a clearer vision than it had expressed before, she says. "Maybe FERC shouldn't have approved Alliance in the first place-it was a lot of wasted resources." Fahey says it is important that FERC has a clear policy and clear direction on RTO formation. "What's critical is to send proper price signals for short and long-term investment. MISO is on the right track to achieve that."

Moler, on the other hand, wonders how the industry will get capital investment in transmission if the RTO isn't a for-profit business model.

Is FERC's sudden reversal on Alliance a bad signal to send to the capital markets? According to Phil Harris, the president and CEO of PJM Interconnection, the answer is no. In addition to the known political risk, Alliance, he says, had many