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The Nation's Grid Chiefs: On The Future of Markets

Exclusive interviews with the CEOs of five regional transmission systems.

Fortnightly Magazine - October 2006

a for-profit company, and you don’t have stockholders telling you what to do. So what is the driving force that governs your direction at the RTO?

Harris: Regarding corporate form, it was the intent of the original PJM companies to make a true for-profit business out of control area operations, and we’ve never lost that intent. Let’s look at the history.

We went from being a power pool to an unincorporated association. Today, we are incorporated in Delaware as a for-profit limited liability company, operating at a zero profit margin. We pay taxes and everything. We’re the only RTO that is set up on that basis, and we did it so that it would be easier for us to evolve to the next level, whatever that might be. So the way we are structured today was never meant to be the end state.

Fortnightly: What about stockholders? You’re not a co-op, are you?

Harris: No. We recognize the fact that we have no owners per se. We’re a limited liability company; the company is the owner, the only way to get our resources back is that we liquidate. And that isn’t a good corporate model. You don’t have the direction; you don’t have the clarity of decision-making. You don’t have all those good governance things that even a municipal like Jacksonville or MEAG or Nashville has. We don’t have our own cash. We don’t have our own equity. Those factors create a problem with governance that needs to be resolved some time in the future.

So, recognizing that we’re only half-way there, we hard-wired three principles into the operating agreement of the limited liability company, as a fiduciary duty for the board of directors:

• Operate a safe and reliable interconnection;
• Create and operate robust, nondiscriminatory power markets; and
• Ensure that no member or group of members has an undue influence over the interconnection.

Of course, as a corollary to that, to carry out those objectives, we have decided that we must ensure a well-trained, professionally qualified work force.

Fortnightly: But while merchant generators might like price volatility, load-serving utilities might not like volatility. That duty to move markets forward starts sounding like an ambiguous instruction, does it not?

Harris: Well, it is. But that’s also why we have stakeholder processes; that’s also why we’re independent. PJM has filed several times—we filed RPM—over the objections of members. We put in economic planning for transmission after two-thirds of the members voted and said “don’t file it.” We filed it anyway. But we were set up to do that very thing. If you truly believe in markets, then somebody somewhere has to have the mandate to create markets.

Fortnightly: When you make a decision like that, such as to institute the RPM tariff, how do you decide to go against the wishes of your members?

Harris: Well, we are regulated by FERC. And there’s exhaustive due diligence. We hold hearings, we hold stakeholder meetings, we allow for oral comments to be provided directly before the board.

But some things you have to