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The Aftermath of Alliance

What can we learn from its failure?
Fortnightly Magazine - February 15 2002

FERC saw a vehicle in MISO that could achieve FERC's goals.

The survival of MISO at all, let alone its crowning as Midwest RTO, represents a fairly stunning change of circumstance. In January 2001, MISO's future was so cloudy, Torgerson issued an open letter that began, "[r]umors to the contrary, as Mark Twain told the Associated Press, reports of [the MISO's] demise have been greatly exaggerated." Torgerson concedes that last May, MISO had to get cash from somewhere. "We were running out of cash, no doubt about it," he says. Because three companies wanted to leave MISO, the organization had no access to capital markets until those issues were resolved, he says.

Ironically, it was the settlement of that case, in which MISO took $60 million from Alliance in exchange for letting Commonwealth Edison, Ameren, and Illinois Power join Alliance, that may have saved MISO from bankruptcy.

PJM Everywhere?

Now, Alliance must try to work out an agreement with either MISO, SeTrans, or PJM to operate as a transco under an RTO umbrella. If PJM achieves two of its goals, though, Alliance will be dealing with PJM regardless of which RTO it technically operates under.

On Jan. 8, PJM filed its bid to become the administrator of markets, systems, and regional planning for the proposed SeTrans RTO. Two weeks later, PJM and MISO announced that they had executed a letter of intent to develop a single wholesale market for electricity producers and consumers in all, or parts of, 27 Midwest and mid-Atlantic states.

The letter of intent is laden with principles for a single energy market, but has scant specifics. The idea behind the letter of intent, according to MISO's Torgerson, is to have a single marketplace for transmission and for day-ahead energy markets. PJM's Harris says that MISO needs to develop an efficient, common market. That market needs to have the same pricing protocol throughout, with one common interface for traders, he says. Currently, MISO has neither day-ahead nor spot markets.

If the PJM/MISO proposal is approved by FERC, Harris says he hopes to accomplish the single energy market by developing three plans. First, PJM and MISO will ask their customers what projects should have the top priority toward developing the single energy market. Next, PJM and MISO will look at their information technology (IT) plan, to jointly assess the state of their respective technology, and to migrate together to new and upgraded technology, so that there will be no inconsistency or incompatibility between the two. Third, the two organizations plan to do integrative planning together, a cost effective solution, Harris says. Under this integrated planning structure, MISO might perform one task for both RTOs, or vice-versa.

The notion of a PJM/MISO single energy market doesn't necessarily please everyone. Esposito says that the prospect of implementing exactly the market rules PJM has in Midwest troubles him. He says that there are kinks to locational marginal pricing (LMP)-in his view, LMP is set up so that congestion becomes a problem for the shipper to work out-but that PJM is working out the