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Commission Watch

FERC's AEP ruling begs the question: Can the feds bypass states that block transmission reform?
Fortnightly Magazine - January 2004

minimize internal seams, but also in eliminating artificial seams between ISOs and RTOs, as FERC now seeks to do in its RTOR and T&O decisions:

"Transactions that cross ISO boundaries are likely to face pancaked transmission rates, increased transaction costs, and inefficiencies, even when the provision of transmission service works very well within an ISO," Fox-Penner said.

"For example, even if an ISO's internal pricing and congestion management are adequate, the absence of a single entity with real-time information on the regional power market is likely to result in less-efficient congestion management for power transfers across ISO boundaries."

Thus, as far back as 1999, Fox-Penner was helping to convince FERC that if trading patterns show that a large percentage of transactions crosses from one region to another, then FERC must span those regions with consistent market structures. Therein lies the foundation for FERC's decision that it must treat MISO and PJM as two halves of a single combined footprint, especially if new members insist on joining the wrong half.

Tariffs: Ironing Out the Seams

The decision to eliminate RTORs and company-specific T&O rates was the correct one, according to Cinergy witness Dr. Michael B. Rosenzweig, senior vice president of National Economic Research Associates.

"If a supplier must cross a seam, its costs are increased by the through-and-out rate and its bid must reflect this additional, administratively imposed cost," Rosenzweig said. He likened the effect to a tax on trade: "The seam is imposing an artificial differential between the price that sellers taking transmission service out of MISO must ask for the energy they could supply to cover their costs and the price that their customers outside of MISO are being offered."

Rosenzweig interviewed several customers and suppliers, finding anecdotal evidence of financial harm from the existence of the RTORs in the combined region. He also reviewed transcripts of a FERC meeting during which executives from former Alliance companies had opted to join PJM over MISO, citing as one reason the harmful effects of the MISO RTORs.

The MISO seam was a "haphazard archipelago of islands, peninsulas and inlets," he said. It would take only one wheel from Illinois (Illinois Power) to New York, he added, but two wheels from Ohio (Cinergy) to New York, so a generator in Illinois that is twice as far from the customer as an identical one in Ohio could gain a significant cost advantage.

Rosenzweig examined transmission service requests before and after the initiation of the MISO RTORs and found a change in the pattern of such requests. He found that in the month MISO began operating, the level of transmission service from MISO to points of delivery outside of MISO fell dramatically from its level in the previous month. The following July, when MISO finished phasing in a series of discounts to the MISO RTORs after receiving complaints from member companies, the level of service returned, but not to the levels seen the year before.

He pointed to the city of Piqua, a full-requirements customer of Cinergy (Cinergy is in MISO, but Piqua is in the