The time-honored discounted cash flow method for determining appropriate utility returns falls short when interest rates are low. Inadequate ROEs ultimately increase cost of capital and wipe away...
A New Solid South
Where Entergy leads, will Wal-Mart follow?
It's only the beginning of the beginning, but Entergy's move to form a single-company RTO-lite across its service territory in Arkansas, Mississippi and Louisiana has everyone talking.
With its novel plan, Entergy has now found a way to embrace the concept of a regional transmission organization (RTO) and yet save face, without surrendering to full federal oversight.
It could even lead to a pilot program for retail electric competition for industrial and commercial customers.
With Entergy's lead, will we see a restructuring of energy markets across the entire Southeast, including such giants as Duke Energy and Southern Co.? That's the question that everyone thinks, but few dare to ask out loud. Up until now, with the possible exception of Virginia (where Dominion has thrown in with PJM), the South has remained "solid"-solidly against RTOs and their market regimes.
On March 22, the Federal Energy Regulatory Commission (FERC) offered its guidance on how Entergy Corp. could establish an independent coordinator of transmission (ICT) and implement an experimental transmission pricing policy.
FERC officials say that the coordinator would carry out five of the eight functions the commission has assigned generically to RTOs. Entergy's transmission pricing proposal is limited to a two-year experimental period under the order and is conditioned on an ICT proposal to add monitoring and reporting conditions.
Entergy's proposal divides transmission upgrades into two categories: "base" plan upgrades, necessary for reliability, that would continue to be rolled into transmission rates, and supplemental upgrades that would be directly assigned to the interconnection customer. And FERC's order calls for the ICT, rather than Entergy, to establish the initial base plan- i.e., to determine which upgrades would qualify as needed for reliability.
FERC said it expects Entergy to hire the Southwest Power Pool (SPP) to serve as the ICT. Having SPP, which has been approved as an RTO, will ensure the ICT's independence, the commission said. The ICT's responsibilities are to include: granting or denying requests for transmission service; operating Entergy's OASIS; calculating available flowgate capacity; and transmission planning.
The order also required Entergy to file additional tariff information specifying the responsibilities and duties of the ICT and to state clearly the ICT's authority regarding requests for transmission service (the additional tariff information had not yet been filed at press time).
Naturally, because Entergy's proposal does not transfer complete control over the operation of the transmission system to the ICT, industry observers are still concerned that there will be undue discrimination. Hence, FERC's two-year time limit on Entergy's transmission plan. But FERC and the industry hope the two-year plan will allow the opportunity for "retail regulators of the Entergy system to see the benefits of a more-open transmission system first hand and consider supporting the ICT assuming operational control over Entergy's transmission system in the future."
Meanwhile, if Entergy is successful, many wonder which company would be next to form an Entergy-like RTO in the Southeast.
The View From Atlanta
David M. Ratcliffe, CEO at Southern Co., said he was encouraged by the developments at Entergy