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Wooing the Western Wind

How a move to bring power markets to the Great Plains has uncovered a crisis in grid planning.

Fortnightly Magazine - February 2009

to purchase firm point-to-point (PTP) service separately—both to secure full capacity credit for generation resources under RTO requirements or state-enforced rules for resource adequacy and renewable portfolio standards, and also to ensure availability of FTRs to hedge against potentially ruinous LMP congestion charges. So the choice either is firm PTP service, or else qualify the resource as fully deliverable across the system and reserve network transmission service. Either way, whether a PTP or network reservation, the additional grid-service charge to ensure FTRs and meet resource adequacy rules will eat into the 88 percent rate discount promised by MISO.

New RTO Mission

The uproar over the MISO’s Western Markets Proposal reveals a fundamental disconnect between the rules that FERC adopted a decade ago to govern RTO formation and structure, including FERC Order 2000, and the reality that today confronts RTOs and their members.

In comments that MISO filed to address FERC concerns that its Western Markets Proposal might lead RTO members to defect, MISO said the “central mission” of its RTO structure is “the voluntary agreement of the Transmission Owners to commit their transmission facilities to the Midwest ISO’ functional control” (Comments of MISO, p. 3, FERC Dkt. ER08-637, filed Aug. 12, 2008) .

But that statement reflects the climate seen in the 1990s, when FERC was touting RTOs as the way to overcome rampant discrimination in the provision of interstate transmission service. It leads RTO policymakers to think in terms of transactional efficiency and minimizing the administrative costs that RTOs incur for tariff design and management of grid operations.

Today, by contrast, the prime directive facing the nation’s RTOs is not to squelch discrimination in grid service, but to get more long-haul transmission built, to integrate vast new supplies of renewable energy, to meet renewable portfolio standards and stave off climate change. The notion of market “independence,” so central to FERC Order 2000, now seems to have taken a back seat to the need for capital formation. This new mission—a massive grid bailout—may well demand a new type of structure at RTOs.

Consider the story shown by the data in Figure 2 (A New Equation for RTO Members.) That figure, taken from comments filed last April by Indianapolis Power & Light, shows how IPL’s annual bill for RTO administrative costs (MISO Schedule 17) has been overtaken by IPL’s huge cost allocation for funding regional grid projects. IPL revisited that topic in a second set of comments, filed in August:

“If the Midwest ISO needed to cut a deal to entice another company on its Western border to join, perhaps exemption from RECB cost-sharing was the key.

“While this speculation may or may not be true, the reality for many existing MISO members is that forecasted transmission expansion costs now dwarf administrative expenses in coming years” (Comments of IPL, p. 4, FERC Dkt. ER08-637, filed Aug. 12, 2008).

It’s worth noting that MISO vice president and CFO Michael Holstein testified in the Western Markets case that a transmission-owning MISO member choosing to defect from MISO to take non-member market service, as offered under