What are the essential characteristics of the system of governance that will be required for a new, North American electric industry with interconnected and interdependent transmission networks...
Public Power & RTOs: How To Avoid Making Swiss Cheese
Several issues need to be addressed before municipals and co-ops participate significantly in regional transmission organizations.
On the last day of the Clinton administration, the U.S. Department of Agriculture issued a controversial regulation halving the maximum hole size allowed in Grade A Swiss Cheese. The Libertarian Party attacked the USDA as "Monterey Jack-booted thugs," but domestic cheesemakers argued that cheese with big holes crumbles during mechanical slicing. When it comes to regional transmission organizations (RTOs) and the Federal Energy Regulatory Commission's (FERC's) attempt to "slice and dice" transmission functions, holes may cause similar problems. So it's important to understand the impediments to RTO participation by consumer-owned utilities, be they governmental or cooperative.
Although FERC's Order 2000 anticipated and discussed some of these impediments, it focused on threshold legal issues like tax and mortgage requirements that limit the private use of consumer-owned facilities. Such threshold issues have to be addressed carefully during RTO formation, and we start with them. However, they generally have proved to be solvable where all relevant utilities, both consumer-owned and investor-owned, genuinely want solutions. Indeed, the Midwest RTO (MISO) and the four operating Independent System Operators (ISOs) in California, the Mid-Atlantic states, New England, and New York include as participants quite a few consumer-owned transmission-owning systems.
An even stronger example of consumer-owned participation is provided by the American Transmission Company (ATC), which owns transmission facilities in Wisconsin and adjacent portions of Michigan and Illinois. Wisconsin Public Power Inc., which had not previously owned transmission, supplied capital to ATC in exchange for transco shares, and other consumer-owned systems are undertaking similar investments. The fact that existing participation is widespread demonstrates that there are no universally applicable and insurmountable legal obstacles to consumer-owned participation. The more intractable problems involve the details of what RTOs do after they are formed, such as how they pay for the facilities they use and how they plan for new ones.
Tax and Formation Issues: Congress Needs To Act
Many municipal transmission facilities have been financed using tax-exempt debt that carries with it a statutory prohibition limiting the "private use" of the funded facilities. Placing municipally owned transmission facilities under the control of a private grid operator could run afoul of these limitations, placing municipal utilities in breach of their bond covenants and exposing investors to unanticipated tax liability. Temporary regulations issued by the Treasury Department in 1998 and 2001 have attempted to deal with this issue, but the solutions are only partial and short-term. Some municipal systems have been able to get private letter rulings; while these have been helpful, such a case-by-case approach does not provide a comprehensive solution. The American Public Power Association and the Edison Electric Institute have agreed on a legislative solution to the "private use" problem, but Congress has not acted. As efforts to resolve this issue drag on, in some parts of the country the uncertainties are slowing investments in needed transmission system improvements.
Cooperatives face similar issues. Cooperatives often are charged with serving rural communities by enabling statutes, their own charters, the federal Rural Utility Service regulations,