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Federalizing the Grid

Renewable mandates will shift power to FERC but pose problems for RTOs.

Fortnightly Magazine - April 2009

explained that RTO market participants and stakeholders remain free to defend their own interests in RTO planning sessions, but that if the RTO should attempt to impose a solution that serves the regional interest, “the stakeholder may threaten to leave the RTO, using membership fees as leverage.”

This asymmetry produces an inherent conflict of interest at RTOs, Welch testified, requiring a “larger planning footprint.”

Welch cites MISO’s ill-fated Western Markets proposal as evidence of MISO’s susceptibility to such pressures. (See, prior column, “ Wooing the Western Wind ,” Fortnightly, Feb. 2009, and the order rejecting the plan, at FERC Dkt. ER08-637, Feb. 19, 2009, 126 FERC ¶61,139.)

Yet an even more radical view comes from ISO New England CEO van Welie, who appears to advocate nothing short of a retreat from one of FERC’s most hallowed open-access principles, the independence of the wholesale transmission sector from any participation in the energy market.

As van Welie testified before FERC, the New England region is now “starting to gravitate towards a model that would overcome concerns … by bundling energy and transmission costs into delivered energy price contracts.”

In other words, van Welie and ISO-NE are leaning toward the solution proposed by Hydro-Quebec, NStar, and Northeast Utilities for the Quebec/New Hampshire grid project that has drawn so much heated opposition from across the electric industry.

Even so, van Welie remains adamant that stakeholders will demand the reciprocal certainty of contracts as a price for funding the new green grid.

“The regional overlay plans give you a sense of what’s possible,” he concedes, “but who decides for the purpose of the model whether natural gas is $5 per MMBtu or $12? Who decides if transmission construction costs will stay the same, as estimated, or whether you will have unexpected inflation?

“RTOs,” he says, “are ill-positioned to take this next step.”