State regulators turn to telecom to salvage the clout they've lost in energy.
State public utility commissions now seem to spend more time on telecommunications than electricity or natural gas. That's their new power base. The telephone local loop marks the one place where state regulators still have clout.
To test that notion, let's see who attended last month's annual meeting of the National Association of Regulatory Utility Commissioners, held in San Antonio. By my count, out of the first 500 registered attendees, over 120 (24 percent) came from telecommunications firms. That figure nearly equals the 135 registrants (27 percent) who came from energy companies.
These numbers may explain why NARUC saved the prime spot in its closing program for William Kennard, chairman of the U.S. Federal Communications Commission, and not for an energy industry star like James Hoecker of the Federal Energy Regulatory Commission, or a congressman pushing federal energy legislation.
That also may explain why Hoecker was not seen in San Antonio. Yet the chairman did travel to Albany, N. Y., the previous month to address the Northeast Interregional ISO Coordination Conference. That meeting, the first of its kind for electric transmission, was set up to help the New York, New England and PJM independent system operators iron out their differences before the FERC is tempted to do it for them by combining the three groups into a single mega-regional ISO. And that may yet happen, judging from Hoecker's remarks in Albany.
WHEN CONGRESS PASSED THE TELECOM ACT in 1996, it played right into the hands of the state PUCs. In sec. 271, Congress set up a litmus test for the former Bell carriers seeking entry into long-distance calling. They must open their local area first and then prove to state regulators that they don't discriminate against competitors. Suddenly, the PUCs gained a measure of influence over national markets (and clout with its key client in all of this, the incumbent Bell carrier).
Of course, it remains to be seen whether the PUCs can call the shots in dictating the scope and pace of telephone competition. In a big case now pending at the FCC, the petition filed Sept. 29 by Bell Atlantic-New York for certification under sec. 271, the New York Public Service Commission has advised the FCC that local markets are open (at least enough to warrant entry into long-distance). The PSC has seen its recommendation opposed by the state's own attorney general, Eliot Spitzer, however.
On Oct. 19, when PSC chairman Maureen O. Helmer filed her agency's evaluation of Bell Atlantic's performance in opening local markets, she acknowledged that the Bell carrier had failed some of the 122 "metrics" used by the PSC and consultant KPMG to test the company's performance under the law's 14-point checklist, and that some parties would cite that failure in opposing certification. However, Helmer insisted that Bell Atlantic was "within striking distance" of the failed metrics.
"Because Bell Atlantic is not satisfying all of the 122 metrics found in its Performance Assurance Plan, we cannot say that its wholesale service is perfect, but the 1996 Act does not mandate perfection." CC Docket No. 99-295, filed Oct. 19, 1999 (F.C.C.).
Yet the New York attorney general was not convinced.
"While the areas of deficiency are few in number, they are great in consequence," said Spitzer in his reply comments filed Nov. 8. Among other things, Spitzer stressed the high percentage of loop orders from competitive local exchange carriers (CLECs) that Bell Atlantic had to process manually. On this point Spitzer won agreement from the U.S. Department of Justice, which also cited manual processing in opposing certification of local competition based on the current record.
As the DOJ noted in its evaluation, "Heavy reliance on manual processing unnecessarily increases CLEC costs and creates a significant risk [of] ¼ service problems when order volumes substantially increase."
Added Spitzer, "We agree ¼ that the 'perfect' should not become 'the enemy of the good,' but in critical areas, Bell Atlantic is starkly not providing nondiscriminatory access."
IN ENERGY, THE FOCUS IS ON THE SEAMS BETWEEN MARKETS. Will it prove easier to coordinate transactions between several different regional transmission organizations (RTOs)? Or will the FERC find it more convenient simply to merge a few small RTOs into one large grid operator?
At the conference in Albany, Hoecker used every opportunity to threaten FERC action, suggesting that the PJM, New York and New England ISOs "should be allowed to become bigger." In other words, said Hoecker, "It is difficult to know whether addressing seams issues is the optimal solution as opposed to seriously reassessing the bounds of existing markets."
One anecdote in particular seemed to capture Hoecker's imagination. He cited RTO comments filed by The Southern Company that claimed that a customer wanting to transmit power 500 miles from Boston to Washington, D.C., would pay $14 per megawatt-hour for transmission across the three ISOs, v.s. $3 for 500 miles across Southern's grid system. Hoecker added, "The test of your success will be better rates [and] lower transaction costs across the Northeast."
Mollie Lampi, a conference attendee from the Pace Energy Project, saw coordination between ISOs as a "real positive move," since she believes the Northeast is simply too large for a single control area. Engineer Richard Felak disagreed, seeing a mega-RTO as possible, "with the proper timing, ground rules and infrastructure." Harvard Professor William Hogan noted that a single mega-RTO in the Northeast would carry a larger megawatt load than the entire Western Interconnection, which could be either good or bad in the long run.
"There may be long-run benefits," Hogan acknowledged. "In the short run, however, there is little doubt that an attempt to merge the three areas would set the process back for years. Far more important is to get the basic market design right in each region."
By contrast, an anonymous source at Albany (representing the power producer and marketer segments) feared that state interests might unite to defend balkanized markets and stave off any FERC-induced broadening of grid boundaries.
"I see serious political barriers to the idea of New York, PJM and NEPOOL moving closer together," the source advised. "I saw the conference as a way for state commissioners to tell the FERC to back off. It is increasingly clear that state commissioners are becoming the key constituency for the ISOs."
The source thus saw transcos as a potential solution, "because they will be FERC-regulated businesses and state regulators will have no opportunity for input."
FERC Commissioner Curt Hébert did not attend the Albany conference. But in comments that he "mailed in" to the meeting, he acknowledged sentiments against wider RTO boundaries but warned state PUCs against assuming that smaller ISOs will help them preserve their authority.
"If you go along with an ISO, you may think you have influence on the governing board, while with a transco you have no seats. Think again. On an ISO others will outvote you. Or, worse yet, no one will be in charge."
Hébert added, "If you think you will use your siting authority, you won't, because then the ISO will go to Congress and want to give [the] FERC siting authority, as the Administration and Barton Bills provide for.
"With a transco, on the other hand, you deal with a profit-making business, as you do with other businesses in your states. ¼ You can negotiate."
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