In an ideal world, legislation would have already happened."
That was Elizabeth Moler, deputy secretary of energy, testifying as the first witness at a Feb. 20 public conference at the Federal Energy Regulatory Commission. The forum attempted to address how to ensure access to transmission as the electric industry builds a new framework to maintain system reliability.
Having just stepped down from the top spot at the FERC, Moler knew what to expect. She understood the limits of the FERC's statutory authority and its budget.
"I came early," quipped Moler, "to find out where my seat would be."
Yet, even she found it difficult to influence the process.
When the commission in early January invited electric executives to come to Washington to discuss how to integrate transmission service with reliability rules, it had asked for "expressions of interest" and had promised a "free-flowing discussion." It got its wish. One prominent industry group likened the process to "a tiger changing its spots or a scorpion its nature." With expressions like that, who needs free flow?
That some comments strained civility only highlighted the fact that the FERC itself was pushing the envelope. Technically speaking, the commission has jurisdiction only over public utilities and transmission service. It lacks clear authority over system reliability rules. That job falls to the North American Electric Reliability Council, though many see its power as illegitimate, perhaps violating antitrust law. Congress could break the impasse, but has dallied. Meanwhile, marketers and other transmission-dependent power suppliers charge that the regional reliability councils discriminate in the way that they enforce procedures for line-loading relief.
As Commissioner William Massey noted, "Every reliability rule, without exception, has a commercial impact. We're not going to be able to avoid it."
And so the FERC, which does have authority over rates, tariffs and terms of service for electric transmission, decided it could no longer wait for Congress, NERC or the Clinton Administration. It has thrown itself fully into the "conundrum of reliability," as one trade association put it.
But the FERC must act quickly if it intends to help transmission-dependent marketers this summer.
Commissioner Vicky Bailey, assigned to run the meeting by FERC Chairman James Hoecker, pleaded: "What we're hearing are global solutions, but we don't have time. I was looking for a bridging mechanism that would get us through this next peaking season."
A Matter of Resources
Few in the electric industry dispute that reliability rules affect electric transmission service. But should they be incorporated in the open-access transmission tariffs already filed by utilities under FERC Order 888? The Electric Power Supply Association raised the issue in its filed comments:
"Many reliability rules directly affect transactions subject to the FERC's exclusive jurisdiction, for example, with respect to scheduling of transmission services, line loading, curtailment of service¼ Such requirements must be seen as effectively amending filed rate schedules (i.e., Order 888 compliance tariffs) without any filing or public notice. This contravenes both the Federal Power Act and the commission's rules of practice and procedure."
As Julie Simon, policy director at EPSA, added: "Many of the rules proposed by the regional reliability councils violate the pro forma tariffs."
In its notice of the conference, the FERC had asked the electric industry to consider three procedural options to incorporate reliability rules into transmission tariffs. (See sidebar, "Updating Transmission Tariffs.") Those three options revealed concern at the FERC over its limited resources and an apparent preference to play the role of after-the-fact adjudicator rather than policymaker.
One process, piecemeal tariff amendments by electric utilities, saw little support from industry. Electric Clearinghouse Inc. terms that option the "one-by-one and everyone" procedure, and found it "administratively burdensome." Steven J. Kean, senior vice president of Enron Corp., added: "Order 888 created a company-by-company tariff approach. ISOs create a region-by-region approach. But most of our deals cross more than one system."
Kean cautioned against taking the easy way out: relying primarily on rules already followed by NERC or regional reliability councils. His comment typified many of the concerns of industrial customers, the Electric Consumers Resource Council (ELCON) and some power marketers.
"We acknowledge that NERC is reaching out," said Kean, "But we're still a year away from balanced membership. And we're two years away from a balanced governance structure."
Others noted that NERC rules for Security Coordinators (22 nationwide) contained no provision guaranteeing nondiscriminatory treatment in curtailment, scheduling or dispatch (em contrary to FERC's operating principles for ISOs. Thus, in areas without ISOs, a rubber stamp of existing reliability rules, even with a complaint procedure, will leave transmission-dependent suppliers unprotected.
Kevin A. Kelly, from the commission's office of electric power regulation, highlighted the FERC's apparent preference for a procedure built on case-by-case complaints. He emphasized that the FERC might fail to uncover discrimination if it should attempt to review reliability rules proposed on a generic basis by NERC, or through a broad stakeholder process:
"I've read the NERC rules sparingly. They read like motherhood and apple pie. You may read the NERC rule or the reliability council rule and may find nothing wrong. The problem, however, may arise when an individual operator interprets the rule. So, if we go through a process to review rules we may end up finding nothing.
"Or, we may end up only serving as a forum to rewrite the NERC rules to make them clearer. Why not wait for NERC to make the rules clearer?"
Kelly's concerns seemed to draw support from José Delgado, assistant vice president at Wisconsin Electric Power Co., chairman and president of the MAIN regional reliability council (MidAmerica Interconnected Network) and a member of the Department of Energy
Task Force on Electric Reliability.
"As an operator," noted Delgado, "I am indifferent to the sequence of curtailment, as long as I can complete all the curtailments in the required time. But, as a user, I am not indifferent to sequence. The problem lies with the application of the rules."
FERC Chairman Hoecker appeared to favor process number one: The commission would not approve reliability rules directly, but would encourage aggrieved parties to file complaints under Federal Power Act section 206, where the FERC would redress discrimination. Hoecker saw that option as more in tune with the FERC's traditional expertise and meager budget.
"Let's assume," Hoecker suggested, "that we look [instead] at all the rules and that those rules are then subject to comment. What standards [of review] should we apply? Are rules discriminatory? Are they just and reasonable? Do they conform to pro forma tariffs?
"I think if we are going to check for discrimination, we have no choice but to use complaint procedures. Congress will have to help us out. We have limited resources."
Another reason to favor a complaints process is that FERC jurisdiction attaches in the first instance to utility companies. At the conference, concern emerged that if NERC (or a reliability council, stakeholder group or successor in interest) were to present a scheme of reliability rules, and FERC were to approve the package and direct affected parties to file tariffs, some parties could file lawsuits and claim exemptions from FERC jurisdiction. After all, with public power entities and other new players added to NERC boards and committees, not all parties in the stakeholder process would remain subject to FERC enforcement jurisdiction after the process was completed.
Others questioned whether a complaint procedure could work. EPSA's Julie Simon, who explained that a system relying upon adversarial complaint procedures would force marketers or suppliers to do battle with business partners: "Our members are reticent to bring complaints because they have to work with these people," Simon advised. "We may be angry but we don't want to alienate our clients."
A New NOPR?
Ironically, just as the FERC would prefer to sit back and hear complaints to avoid straining its budget, various industry associations favor the idea of a new FERC-led NOPR to craft a generic, industry-wide reliability tariff, as with the notice of proposed rulemaking completed in Order 888. While that option would strain resources at the commission, it would help industry players marshall their resources in a single docket. Otherwise, under process two or three, trade groups could find themselves intervening in many different parallel policy forums, specific to companies or regions. No one made that point better than Susan Kelly, senior regulatory counsel for the National Rural Electric Cooperative Association:
"We support a broad process. You don't need to watch a huge number of dockets. However, we didn't reach this conclusion with a happy heart. It would be a career-limiting thing for me with my members to suggest a new NOPR. We are not a fan of more rules."
Putting aside the problem of resources, how would the FERC conduct this new generic rulemaking to create a reliability tariff?
Commissioner Massey asked the question: "If the NERC rules are developed in an open process, with lots of stakeholders and an independent board, which has struggled to develop a consensus, how do we address those rules? Do we give deference?"
"You ask how much deference. I say, 'a lot,'" answered Delgado.
"If we're talking about a process like Orders 888 and 889, I think it could turn into a nightmare," Delgado added. "Either you stay very close to the control board or you lose your expertise very quickly."
In fact, a crucial point leading some to favor a new FERC NOPR with an open process comes from the notion that with broad industry participation by industry stakeholders, the FERC could satisfy itself with an appellate-style review of due process concerns. It would ask simply if all stakeholders were allowed and welcome to participate. Was the process fair? The commission would avoid engaging in de novo review (em any substantive look at the rules themselves.
Thus, with the assurance that the stakeholder process itself largely would be conclusive, and without second-guessing from the commission, many industry players with limited staff resources felt they would have reason and inclination to participate fully.
"APPA would find a way to devote more resources at the industry level if we knew that the FERC was going to give deference to the stakeholder process," volunteered Kurt Conger, director of policy analysis for the American Public Power Association.
"We don't have enough resources to participate in all the NERC task forces," added Sue Kelly, "knowing that the FERC is going to enforce de novo review anyway. That's the worst of both rules."
On the other hand, however, no party objects more strenuously to a reliability NOPR at FERC than does NERC itself, which has invested much effort in reforming itself from within. In its formal written comments, NERC cited recent internal reforms: (1) mandatory compliance with standards imposed by regional reliability councils; (2) election and seating of two customer representatives on NERC's Operating Committee in November (the Engineering Committee was to follow suit soon); (3) appointment of a panel of outside experts; (4) formation of Compliance Subcommittees within the Operating and Engineering Committees; and (5) newly coordinated programs to set standards for training and qualification of system operators.
NERC also cited "a growing awareness" among its members that some form of federal legislation would be required to ensure compliance with reliability standards. One model would call for a self-regulating organization, set up in a manner similar to the National Association of Securities Dealers. Known either as the SRRO (Self-Regulating Reliability Organization), or NAERO ("North American Electric Reliability Organization"), this new organization would operate under the unambiguous (if light-handed) supervision of the FERC.
Speaking at the public conference, NERC President Michehl Gent said, "I'm very much opposed to a new rulemaking. At NERC we've spent a lot of money to restructure and move forward. If you [the FERC] initiate a new rulemaking then our process grinds to a halt. You become the center of attention."
Bruce W. Radford is editor of the Fortnightly
Regional Matters: A Role for States?
THE New York Public Service Commission advises that states are often in the best position to examine and determine need for local reliability measures. For example¼
TRANSFORMERS. On the West Coast, transmission-level transformer outages are rarely considered a major concern, as most high-voltage transformers [include] three single-phase transformers, with a spare on site. In contrast, the East Coast has the lower-cost three-phase transformers without an on-site spare and considers an outage to be a major contingency.
STABILIZERS. Similarly, the West Coast system plans for all large generators to have power-system stabilizers, while the East Coast plans a reliable system without this requirement. That is why most of the NERC's and the regional councils' criteria are broadly specified, leaving the individual utilities and ISOs the latitude to customize the criteria to their specific systems.
Source: Ronald Liberty, Director, Electric Div., N.Y. Public Service Commission, comments filed Jan. 30, 1998, in FERC Docket pl98-3-000, see 63 Fed.Reg. 6559, Feb. 9, 1998.
Updating Transmission Tariffs
FERC Suggested Three Options,
But the Industry Proposed a Fourth
WHAT process should the FERC follow to incorporate reliability rules into open-access transmission tariffs?
1. WAIT FOR COMPLAINTS? Transmission providers follow rules set by the reliability organization to which they belong. FERC does not specifically approve reliability rules, but entertains complaints filed under Federal Power Act sec. 206. Early proponents: Little professed support, but filed comments hint at acceptance from MAPP, New York Power Pool and Transmission Access Study Group. Advantages: Low cost; rules already largely set; accommodates regional differences; FERC comfortable in role of hearing complaints. Drawbacks: Regional councils lack proscriptions against discrimination; many regions lack ISOs to ensure nondiscriminatory interpretation and enforcement.
2. PIECEMEAL APPROVAL? Each utility belonging to a reliability group files rules as amendments to its open-access transmission tariff, subject to FERC approval. Early proponents: ELCON professes support in comments, but appears to prefer a legislative solution that restructures NERC as a self-regulating reliability organization with statutory FERC oversight. Advantages: FERC jurisdiction is clear; process worked under Order 888, can recognize regional differences; makes reliability rules part of formal tariffs subject to FERC review; avoids control over process by NERC. Drawbacks: Administratively burdensome; FERC must review substantive rules.
3. NERC LEADS, FERC DEFERS? The reliability organization (NERC, regional councils or successor) sets rules, then files request for declaratory order from FERC accepting rules. Utilities then incorporate rules in their transmission tariffs. Industry expects that FERC will give deference to stakeholder collaborative, avoid de novo review. Early proponents: EEI, The Southern Company, and TAPS (only if complaint process available). Advantages: Speed; borrows on rules already in place; industry participants set rules; FERC reviews due process only (no de novo review). Drawbacks: Alleged NERC bias against transmission-dependent players; appellate-style review of rules may prove insufficient, ignore bias in the interpretation.
4. A NEW NOPR? Not proposed by FERC, but suggested by many. FERC would file notice of proposed rulemaking to establish industry-wide reliability tariff. Early proponents: Electric Clearinghouse Inc.; NRECA; Coalition for a Competitive Electric Market. Advantages: Open process; avoids alleged NERC bias favoring transmission owners; single docket saves resources for participants; clear statement of FERC jurisdiction. Drawbacks: Slow; costly; strains FERC resources; makes FERC a policy maker, undermines NERC restructuring efforts.
Source: Industry comments and testimony, filed in FERC Docket No. pl98-3-000, see 63 Fed.Reg. 6559, Feb. 9, 1998.
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