Seven suggested plots, but no bestseller.
Let's be charitable and call them first drafts-for they can be seen as nothing else. Like all first drafts, the seven RTO proposals filed at the Federal Energy Regulatory Commission last fall need lots of revision. Indeed, a couple may need to be thrown out entirely, since trying to revise them would be a waste of time. Still, there are nuggets throughout that are worth keeping and rolling into the final, FERC-approved entities.
To save readers the time and trouble associated with reading the drafts, we have compiled a CliffsNotes version of the proposals. These notes are particularly timely given that a second round of RTO proposals are due at FERC this month.
The regional transmission organization proposals in question were submitted by Southern Co.; Entergy and the Southwest Power Pool; GridSouth, a group of three southeastern utilities; GridFlorida, which includes the three principal Florida utilities; DesertStar, a group of utilities in the Southwest; RTO West, a group of nine, largely northwestern utilities; and The PJM power pool.
Ironically, the drafts do call to mind some aspects of the world's great books. Southern's proposal, for example, reminds us of Machiavelli's scheming "Prince," who justifies any action to remain in power.
1. SOUTHERN COMPANY. The proposed structure of Southern's RTO, which would include just the holding company's five utility subsidiaries for sure, underscores the company's desperate desire to remain in charge.
For example, in one of the three governance proposals put forward by Southern, the operating unit within the RTO would be a limited liability company (LLC) in which the participating transmission owners would be members governed and managed by a board of directors. Sounds good so far, but it breaks down after that, since Southern would not just have one membership in the LLC, but five-one for each of its regulated operating companies. Those seats equal the number of memberships proposed for the five other transmission owners in the Georgia Integrated Transmission System (GITS) that have been invited to join the RTO. In other words, Southern would retain absolute control.
Moreover, the Southern proposal would allow the LLC owners to pick the CEO of the new company. And since Southern would have at least half, if not more, of the ownership votes, the company effectively would be able to hand-pick the new executive-not exactly the type of independence sought by FERC in its RTO order.
The proposed scope of this RTO also points to Southern's Machiavellian desire to maintain control, since in reality the RTO simply would consist of Southern's operating utilities. The other invited transmission owners are small and even added together would do little to mitigate Southern's influence.
In short, Southern's RTO proposal would do little more than maintain the status quo-that is, Southern's dominance of the region's generation and transmission assets. Machiavelli's prince would be proud, but FERC should be concerned.
2. ENTERGY. Entergy's proposed transmission company (transco), which would operate as part of the Southwest Power Pool's (SPP) planned RTO brings to mind a more recent book, Joseph Heller's "Catch-22."
First, with regard to SPP itself, the proposed transmission tariff is very promising. The catch is that it would cover only 8 percent of that market.
In its proposal, Entergy has gone to great lengths to ensure that its new transco will retain the rights of an RTO, particularly in the area of rates, operational control, and transmission planning, but have none of the responsibilities.
For example, Entergy says its new transco and the proposed SPP RTO will have "full operational authority over their respective transmission facilities.'' But to have such authority, the transco must be an RTO, and Entergy admits that its planned transco does not, by itself, satisfy all of the required functions of an RTO.
Now there is a Catch-22 even Heller would be proud of.
Similarly, Entergy proposes that its transco will be able to provide for short-term reliability within its control area, including decisions on redispatch and power curtailments, with no oversight from the RTO. But FERC's Order 2000 states that RTOs have "exclusive authority for maintaining the short-term reliability of the grid that it operates.''
Either Entergy's transco is an RTO or it is not, but it cannot be both-unless of course Heller wants to revamp his original work.
3. GRIDSOUTH. The so-called GridSouth RTO conjures up visions of the monster in Mary Shelley's "Frankenstein." Like the misshapen creation of Victor Frankenstein, conceived in his own image, the GridSouth RTO is a cobbled-together entity that would incorporate all of the flaws of its creator. Worse, no one knows how it will behave once it is off the operating table and begins running the region's transmission grid.
However, there are plenty of clues in GridSouth's filing that its proposed RTO would be a monster bent on destroying the region's non-utility market participants. For example, GridSouth's utility backers plan to have their creation craft the rules for the region's new transmission market.
As a for-profit entity the transco would, therefore, have substantial incentive to tilt the rules in its favor.
Similarly, GridSouth's utility backers would select the board of directors who would be responsible for running this new creation, and the directors' compensation would be subject to utility approval.
These are hardly measures likely to guarantee the transco's independence-the bedrock on which FERC's RTO policy is built. The GridSouth proposal also is deficient in a number of other areas, including the key issues of transmission service comparability, future interconnection requests, and interregional cooperation.
As such, the commission should make sure this monster remains in the operating room.
4. GRIDFLORIDA. To the south lies the "Treasure Island" of Florida, whose three principal utilities have put forward a plan, GridFlorida, for a secluded, single-state RTO. There are some nuggets of gold buried in this proposal, but much like the GridSouth proposal, GridFlorida would be a for-profit transmission company. As such, it would be saddled with a host of now-familiar independence concerns.
EPSA supports the establishment of for-profit transcos, but those same entities cannot be responsible for designing the market.
Given the similarity of the GridSouth, GridFlorida, and even the Southern proposals, the best option would be for FERC to require the adoption of a neutral organization to govern market policy across the three RTOs. Such an entity also would lay the groundwork for a more geographically unified RTO.
If left alone, the three areas may become increasingly separated, Balkanizing the southeastern transmission market when greater integration is needed.
5. DESERTSTAR. Moving west, the DesertSTAR (DSTAR) proposal has a number of positive attributes. Its plan to roll essentially all transmission service, including native load, under the new RTO tariff is particularly noteworthy. Such a move significantly would improve the competitive environment in the Southwest and should serve as an example for the rest of the country.
DSTAR and its utility backers also deserve praise for their willingness to involve all market participants in the RTO development process. This openness has strengthened the planned RTOand would have a similar impact elsewhere in the country.
But like the other proposed RTOs, there are some serious problems with DSTAR. Again, the independence of the RTO is a major concern. Another is the RTO's lack of control over the region's transmission facilities and its limited authority to direct future expansion. But the real concern with DSTAR is its size and configuration.
Like the Ingalls family in "Little House on the Prairie," the DSTAR RTO is a small, self-contained unit. But it is much too small to survive in the sprawling western United States. Of particular concern is Nevada Power's defection to RTO West, another planned western transmission entity. If FERC approves that plan, both RTOs would end up being fatally flawed.
As such, FERC should order Nevada Power to join DSTAR. Such a move would be controversial, but it would help significantly to create workably competitive markets in the West. However, even that would not resolve the size problem, and EPSA believes that in time FERC must compel DSTAR to join with RTO West and California in a combined RTO structure. Ultimately, what is needed is a unified regional market for the entire Western Interconnection.
6. RTO WEST. Aside from the previously mentioned Nevada Power problem, there is much to like in the planned RTO West, the result of an arduous and ongoing Homer-like "Odyssey" with many twists and turns. As with DSTAR, the RTO West utilities are planning to roll all transmission, including native load service, under the new tariff. Such a move significantly should improve the region's competitive energy market, since upward of 80 percent of the Northwest's transmission system is now used to serve native load.
Another positive in RTO West's proposal is the inclusion of the Bonneville Power Administration, which proves that the contentious issue of public power participation can be overcome, provided the two sides are willing to compromise.
Despite this, there are several serious shortcomings in the proposal, beginning with the degree of control RTO West will have over transmission facilities in the Northwest. As currently structured, the RTO will not have control over a number of key lines, which will have a serious negative impact on the ability of new generation to interconnect to the transmission grid. Under this structure it also will be impossible for the RTO to comply with FERC's one-stop shopping requirement or to eliminate rate pancaking.
The RTO's plan for dealing with system congestion by allocating firm transmission rights (FTRs) is another major concern. While the concept is appealing in the abstract, the reality of the allocation process, in which current transmission customers get the FTRs and provisions are made for future load growth, means there will be little, if any, transmission capacity available for new market entrants.
7. PJM. Finally, there is the question of the PJM power pool's RTO proposalwhich we're affectionately dubbing "Vanity Fair." Yes, yes, we agree. PJM operates fairly well and is reasonably market driven, but to approve its RTO application based on those endorsements alone would be a mistake.
As with the other RTO proposals, there are a number of independence concerns that still must be resolved before PJM can hope to function as a true RTO. But it is PJM's size that is the real issue. A truly regional transmission organization in the Northeast likely would incorporate PJM and the New York and New England power pools. That is the direction FERC should be heading if it is serious about the "regional'' in its RTO policy. On the contrary, if FERC okays PJM's RTO application, then there will be no rationale for not also allowing the New York and New England power pools to become RTOs. And that would seriously slow the development of a truly competitive market in the Northeast.
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It is clear that all seven proposals fall well short of what's needed in today's rapidly changing electric marketplace. But what exactly is needed?
For EPSA, an RTO "tour de force'' would be easy to write. The theme throughout would be, Will the new entity make the market more competitive than it is today? Beyond that, the RTO would include native load under its new transmission tariff; require all customers to pay startup and ongoing administrative costs; meet all FERC requirements before getting the regulatory seal of approval; manage generation interconnections; ensure that new entrants could gain access to reasonable supplies of firm transmission rights; and be responsible for all congestion management issues.
Write that out, and then get backing from the "editors'' at FERC to push for substantial interregional cooperation, and you would have a best-selling RTO.
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