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RTOs and the Public Interest

Defining the mission when the consumer plays second-fiddle to the needs of the market.

Fortnightly Magazine - September 2009

in New England, in response to Order 719, ISO New England had expanded on a previously published list of objectives and drafted its own proposed mission statement—with a promise to “strive to perform” all its functions and services “in a cost-effective manner, for the benefit of all those served by the ISO.” And further, “to provide quantitative and qualitative information on the need for and the impacts, including costs,” concerning any major ISO initiative that would affect market design, system planning, or operation of the bulk-power system.

But gone missing was any mention of “consumer” or “ratepayer,” though the ISO said it “believed” that the phrase “all those served” implicitly would include “ultimate end-use consumers.”

That omission troubled consumer advocates, state regulators, public-power utilities and others concerned about rising costs for electric transmission-line projects slated for New England—costs required to be shared across the region for projects certified by the ISO as needed for reliability and system operation.

They questioned the ISO’s odd choice of language: “to perform in a cost-effective manner.” Did that refer only to the carrying out of the ISO’s own internal tasks, as opposed to the objective merit of the tariff in question?

The phrase “all those served” also appeared ambiguous. After all, RTOs at their core are transmission-service providers. The PJM tariff, for example, appears to exclude plain-vanilla retail ratepayers from the term “eligible customer,” whom PJM defines as either: A) any electric utility, transmission owner, power marketer, federal power-marketing agency or person generating electric energy for resale; or B) any retail customer taking unbundled transmission service directly from PJM.

And so the public power sector proposed an alternative statement of mission that would refer explicitly to the Federal Power Act and of FERC’s duty to keep rates affordable:

To ensure just and reasonable rates as mandated by the Federal Power Act and as determined by the Federal Energy Regulatory Commission, the ISO shall fulfill its mission at the lowest reasonable cost, consistent with the preceding principles ultimately to the benefit of all consumers who pay for electricity products and services.

Nevertheless, that effort failed to win at a roll-call vote taken April 3, 2009, at the NEPOOL participants committee meeting, leaving the ISO version intact.

Moreover, in defense of its less-committal mission statement, the ISO reminded the industry of its primary duty to plan and operate the bulk-power system, but to let the market decide when it should certify need for new system capacity.

The ISO stressed that it couldn’t determine “the relative costs and benefits of alternatives to transmission and advocate for the alternative with the “lowest reasonable cost. … [That] would be replacing its function as the operator of regional markets with a regulatory role in which it determines the alternatives the meet the region’s needs.”

The ISO saw its role as remaining neutral on the relative merits of competing proposals:

“If the market meets the identified need, through generation, demand response or otherwise, the transmission need determination will be withdrawn … [and] regional cost support will cease.” (See, Filing of ISO New England