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A Gas Crisis, or Not?

The conclusions made by the NPC gas study raise more questions than they answer.
Fortnightly Magazine - September 2004

2003 white paper, FERC indicated that its final rule on RTOs likely would require all transmission utilities with wholesale customers to join an RTO.

In the meantime, joining an RTO is still voluntary, but this brings advantages and drawbacks. For example, by making a commitment to work together on structuring the organization, members become vested in the RTO. In theory, this will result in an RTO that is optimally suited to the needs of the industry it serves. But like any democratic process, RTOs' consensual nature also creates its share of difficulties.

"When you have a voluntary organization, each member is giving something up to join," says Dale Landgren, vice president and chief strategic officer for American Transmission Co. in Pewaukee, Wis. "By joining, companies give up some control of their systems, and they have to weigh that against what they get out of it."

Because RTOs can't force utilities to join, they've encountered difficulties in integrating some major transmission owners into their systems. In MISO's case, this has left some significant gaps in its territory. A few major examples include MidAmerican Energy in Iowa; Commonwealth Edison (ComEd) in Illinois; and American Electric Power (AEP), based in Ohio.

AEP and ComEd have opted to join the PJM system, even though both companies are based within the MISO footprint. MidAmerican Energy thus far has remained on the sidelines, participating in MISO only indirectly through its membership in the Mid-Continent Area Power Pool (MAPP)-one of three NERC regions overlapping MISO's footprint.

"The only large [investor-owned utility] in the Midwest not in an RTO now is MidAmerican. Otherwise they're pretty much spoken for," says James Torgerson, president and CEO of MISO. "People are always going to look at their options to see if there is a better alternative. It's up to us to ensure that we are providing the services and products that companies need, at the lowest cost."

In some sense, then, RTOs are competing for members, especially large utilities that bring strategic assets into the organization. Moreover, having utilities withdraw from an RTO in the middle of its development creates uncertainty that complicates the RTO's ability to raise financing and attract other members. Thus, competition for major transmission utilities is an inevitable by-product of RTOs' voluntary nature. Some stakeholders are asking, however, whether competition among RTOs might create unfair biases in their structures.

"In the Midwest you see utilities RTO-shopping," says Joseph Welch, president and CEO of International Transmission Co. in Novi, Mich. "RTOs will make special deals to get big utilities to join them, and the rules are being shaped to favor the hometown crowd."

As an example, Welch cites the joint operating agreement between MISO and PJM, which FERC has cited as a condition of approval for some companies (including AEP) to join PJM. "The joint operating agreement institutionalizes large amounts of loop flow through the Michigan system, such that it is starting to impair reliability," Welch says.

Torgerson asserts he's not aware of any deals being made that would affect RTO rules, but he acknowledges that RTOs will work with