EARLIER IN THIS DECADE, FERC CHAIRMAN MARTIN ALLDAY delivered his famous quote: "Everybody is somebody's native load customer."

Today, that truism has fallen under attack. It could go out the window if power marketers get their wish. One group of marketers has asked the Federal Energy Regulatory Commission to open a new rulemaking on electric system reliability. This group proposes to end the notion of transmission responding to load. Instead, they want energy suppliers and consumers to purchase reliability: "The very concepts of load server and native load are anachronisms that should be replaced with the nomenclature of markets: seller and buyer."

Meanwhile, the North American Reliability Council is going in the opposite direction. In its efforts to reform from within, NERC sees the problem as one of converting voluntary compliance to mandatory enforcement. That means legitimizing a system of top-down sanctions (i.e., a new independent organization with open governance and government supervision). Like solving an engineering puzzle, experts would decide what the grid can accommodate and enforce their decisions through curtailments.

The Power Marketer Coalition

On March 25, the same day that Energy Secretary Peña announced the Clinton Administration's bullet points for new federal legislation for electric restructuring, a group of power marketers filed their petition at the FERC. They invited the Commission to open a new docket that could prove as complex as Order 888.

The coalition of power marketers is a diverse group. (See notes following sidebar, "Favoring Commerce: The Grid for Sale?") It includes ELCON, the Electric Consumers Resource Council. Its petition follows on the heels of a complex series of events at the FERC.

Late last summer, the Coalition for Private Tariffs, or CAPT, a smaller group of marketers that included ELCON, filed a complaint with the FERC asking it to compel NERC to cease and desist enforcing its transaction tagging rules, created under NERC's Operating Policy 3, also known as "iTIS," (the interim Transaction Information System). The tagging rules (attached as an exhibit to the CAPT complaint) used a computer-based electronic spreadsheet to identify parameters for interchange transactions, including all intermediary control areas along the contract path (not just the buyer and seller), making all data available to all control areas along the way, many run by utilities that compete with marketers. As CAPT said in its initial complaint, the tagging rules appeared to violate statements FERC's exclusive jurisdiction over electronic scheduling of transmission access.

Later, CAPT reworked its complaint to focus on how tagging had affected access to transmission: "CAPT is aware of at least 17 instances in which the failure or inability to take was the sole reason [for] a transmission provider¼ refusing or cutting transmission service." The FERC then assigned a new docket to the case. (See, Motion of CAPT, Docket rm95-9-003, filed Aug. 27, 1997; Supp. Motion of CAPT, Docket No. el97-58-000, filed Sept. 10, 1997.)

The case attracted comments from all over (em including the Edison Electric Institute, American Public Power Association the Electric Power Supply Association, the Transmission Access Policy Study Group, the Southwest Power Pool and PJM (supporting companies and the industrial coalition).

The comments from TAPS set the stage for the case: "[It] raises a fundamental issue; the extent to which the NERC¼ policies, practices and requirements that are implemented by jurisdictional utilities must be filed with the FERC [for] review under the Federal Power Act."

However, the comments from Electric Clearinghouse Inc., proved the most revealing, giving the best explanation of what irked the power marketers: "[I]t leads one to ask whether the problem that led¼ to tagging¼ is truly a physical, reliability problem, instead of¼ an accounting problem."

Clearinghouse explained how line relief rules can prejudice power marketers: "If a [marketer] wheels across three utility systems under firm point-to-point transmission service, and then makes an economy sale to a fourth utility as a non-designated network resource, the entire transaction is deemed non-firm. And, to the extent [it] is deemed to have a mere 5 percent impact on a parallel path, such transaction may be curtailed."

CAPT provided other examples: "[In] August 1997, a transmission customer selling power to Central and Southwest lost a 50-megawatt supply from Union Electric¼ due to line loading relief in the Southwest Power Pool¼ CSW cut the schedule [because] it had not been tagged¼ The transmission customer called CSW's scheduling desk and explained it had faxed the tag¼ CSW replied: 'No tag, no flow, end of discussion.'"

On the other side, NERC said it was looking at the problem (em that a task force had recommended several changes to tagging requirements, including making it optional whether to identify ramp rates or generation source and ultimate load. It said it would send the completed tag only to sending and receiving control areas and transmission providers (em not to all purchasing and selling entities up and down the transaction, as before.

The Edison Electric Institute supported NERC's argument, claiming the CAPT filing was "misleading, premature and unripe." Said EEI: "CAPT paints a bleak picture of what is actually a very rich and changing landscape. As the Commission is fully aware, NERC is sending notices of meetings [and document drafts] through the mails, FAX and the Internet."

Others noted that the FERC lacked jurisdiction to dictate to NERC.

To solicit ideas on how to deal with the problem, the FERC asked the electric industry for comments, but the effort backfired. The FERC had preferred to sit back and wait for individual complaints to filter in, but many in the industry told the Commission that what they really wanted was a brand-new rulemaking. (See "Reliability: FERC's New Gig?" Public Utilities Fortnightly, April 1, 1998, p. 18.)

Sure enough, that wish came closer to fruition with the petition filed March 25. There, the power marketers urged the FERC to move toward a market solution to reliability, away from the old method of threats of curtailment for violation of reliability rules. To support that idea, it described how curtailment fails to achieve economic efficiency in managing transmission line congestion: "We are informed by the MAPP operator that the average efficiency of this form of managing line loading through curtailing transactions can be as low as approximately 10 percent (em that is, for every 10 units of a curtailed transaction only 1 unit of line loading relief is achieved." (See, Petition for a Rulemaking on Electric Power Industry Structure and Commercial Practices, Docket No. rm95-8-000, March 25, 1998, p. 39.)

The petition suggested the FERC should reexamine its earlier proposal to set up a system of capacity reservation tariffs for all transmission rights. Thus, the power marketers would have the FERC give no recognition to the needs of load. Instead, it would allocate transmission rights on a first-come, first-served basis, with all power producers, sellers, suppliers and marketers purchasing monetary rights to transmission capacity.

The FERC's CRT initiative had failed to win many converts. The marketer coalition explained why that was, and offered an alternative solution: "The conceptual error in the CRT proposal lay in its requirement that transmission users reserve points and paths rather than reserve rights to constrained interfaces."

At press time, the FERC had yet to act on the CAPT complaint. When asked why, CAPT attorney Jeffery Watkiss replied with a question of his own: "Ask the FERC why it was able so quickly to hand down its March 25th order [Docket No. er98-1033] taking jurisdiction over the electronic software used by Automated Power Exchange to evaluate wholesale power bids."

The NERC Reform Effort

A collaborative process is under way at NERC. On Dec. 22 the "blue ribbon" Electric Reliability Panel released its plan to reform NERC as the North American Electric Reliability Organization. NAERO, a self-regulating organization operating under government oversight, would be modeled after the National Association of Securities Dealers, an SRO subject to review by the Securities and Exchange Commission.

The blue ribbon panel included such luminaries as Richard Drouin (former CEO of Hydro-Québec) and Charles Stalon (former commissioner at the FERC and Illinois Commerce Commission). It also included Hazel O'Leary (former DOE secretary), Richard Balzhiser (president Emeritus of the Electric Power Research Institute), Alex Radin (for some 30 years, head of the American Public Power Association) and Leonard Hyman (the well-known author and utility financial expert).

The panel's report, received for review in January by the NERC board of trustees, stops short of answering all questions. Notably, it recommends a top-down national governance structure for the new NAERO, sidestepping any attempt to define a new role for the current regional reliability councils, which have dominated NERC governance. The panel says only that the NAERO should draw up a Memorandum of Understanding to spell out its relationship with the new RROs (regional reliability organizations).

That glaring omission was not lost on many of the persons and organizations filing comments. (See sidebar, "Reforming NERC: Legitimizing Authority.") Consider these words from the Oklahoma Corporation Commission: "The role of ISOs and the NAERO should be addressed¼ [M]any reliability councils are transforming into ISOs. Should the ISO reliability standards meet NAERO standards?"

That comment and others like it lead one to question whether the panel wants to change NERC from bottom-up (dominated by RRCs) to top-down precisely because it believes that ISOs will supplant the regional councils.

The comments revealed certain surprises. For instance, the Edison Electric Institute found itself aligned with Enron Power Marketing and John Anderson's Electric Consumers Resource Council. All three questioned why NAERO should continue to oversee adequacy of electric system supply or transmission capacity, since generation is becoming competitive, and in a very real sense can serve as a substitute for transmission. In a similar vein, the Public Generating Pool (Seattle City Light and the Douglas and Chelan County PUDs) noted: "The proposal does not contain a single reference to ancillary services and ignores the potential for a market."

Some of the most interesting comments came from James F. Wilson, a consultant with ICF Resources, who helped prepare the background report on independent system operators for the DOE Task Force on Electric Reliability, headed by former Congressman Phil Sharp. Wilson offered backhanded praise for the panel's switch to top-down governance: "If regional organizations are to have the primary enforcement role, it is not clear to what extent NERC's present role and status, along with enhanced government support¼ would be insufficient."

Wilson also felt the report failed to justify why the new NAERO must be self-regulating, patterned after the NASD: "[It] did not [show] why, if NAERO needs certain exclusive authorities that derive from government, it should be an SRO rather than a government entity¼ The reasons given were that an SRO will be more able to attract and retain sufficient technical expertise (em that is, pay higher salaries."

In fact, many comments from RRCs stressed the importance of continued voluntary participation by industry experts. F

Bruce W. Radford is editor of Public Utilities Fortnightly.

Favoring Commerce: The Grid for Sale?

POWER MARKETERS ask FERC to do away with "network" transmission service, forging a cash market in reliability.

1. Eliminate notion of "native load," or any preferences for load-based transmission.

2. Eliminate concepts of point-to-point and network transmission services, as understood in Order 888.

3. Broaden concept of "functional unbundling"; separate transmission entirely from merchant activity.

4. Regulate "retail" portion of transmission in bundled retail energy service.

5. Require transmission owners to post all transmission service on OASIS.

6. Create single tariff for transmission, keyed not to load, contract paths or delivery or receipt points, but to rights at constrained interfaces.

7. Allow trading of transmission capacity reservations in secondary market.

8. Standardize rules for defining, identifying and measuring ATC (available transfer capacity) and TRM (transmission reliability margin).

9. Combine "Balkanized" control areas; mandate larger areas for ISOs, system control and ATC.

10. Allow all transmission customers to pool or batch energy transactions, without reserving and scheduling each deal separately.

11. Disallow "private" transmission tariffs (em rules imposed by NERC, power pools or regional reliability councils not filed at FERC.

12. Regulate all terms and conditions of transmission service, including rules linked to reliability, system security and system adequacy imposed by NERC and regional reliability councils.

Source: Petition for a Rulemaking on Electric Power Industry Structure and Commercial Practices and Motion to Clarify or Reconsider Certain Open-Access Commercial Practices, FERC Docket No. rm95-9-000, March 25, 1998. Petitioners include: Altra Energy Technologies Inc., Automated Power Exchange Inc., CNG Power Services, Coalition for a Competitive Electric Market, Destec Energy Inc., Eclipse Energy Inc., ELCON, Electric Clearinghouse Inc., Engage Energy US LP, Enron Power Marketing Inc., Koch Energy Trading Inc., Shamrock Energy Corp., Sith Energies Inc., Sonat Power Marketing LP, Vitol Gas & Electric LLC, Williams Energy Co.

Reforming NERC: Legitimizing Authority?

THE PANEL would remake NERC as NAERO (self-regulating with government oversight), but some see trouble.

1. GOVERNANCE (em NATIONAL OR REGIONAL? Today NERC cedes control to regional reliability councils. New plan sees national board (top-down authority) but leaves status of new regionals (RROs) ambiguous, subject to Memo of Understanding. Many question national control (Allegheny, N.Y. PSC, Edison, & most RRCs). Citing regional variations, they want a strong local voice. ECAR: "If RROs are not members, what's their status?" SERC: NAERO plan makes "no minimal business case" for RROs. WSCC, WRTA, Cal. & Oregon PUCs want independence for each interconnection (Western, Eastern, ERCOT, Quebec). Others: "If NAERO keeps regional autonomy, why is current structure insufficient?" And: "Should ISOs replace the 10 current RRCs?" EPSA says yes, wants lesser number of ISOs.

2. BOARD MEMBERS (em TOO INDEPENDENT? Comments fault NAERO plan for a 21-member board with only 7 stakeholder directors (14 slots for "independents"). Many want more stakeholders (Allegheny, EEI, HL&P, SDG&E, SERC, SPP, WSCC) or slots reserved for RROs (ECAR, MAPP, Edison, UMPA). ERCOT models board after its own ISO, with slots for transmission owners, customers, IPPs, co-ops, munis, utilities, marketers. NGC, EPSA say NAERO plan is just fine. NRDC favors board with 100 percent stakeholders or none at all; take your pick.

3. MISSION (em CONTROL CAPACITY? Many fault new mission in NAERO plan, which makes system "adequacy" only secondary (grid security still primary). They want equal billing for adequacy (MAAC, N.Y. PSC, Pa. PUC, PSE&G). But EEI asks, "We question whether NAERO should assess system adequacy [since] it's defined largely in terms of generation, which is rapidly moving to competitive markets." ELCON, Enron concur, as does Cal. PUC: "It is unclear what its role should be if supply is found inadequate."

4. STRUCTURE (em WHY AN SRO? Panel sees NAERO as a "self-regulating organization," modeled after securities industry, where SEC oversees NASD. But ICF's Wilson says analogy with stock exchanges doesn't hold; suggests panel failed to justify why NAERO should not be a government agency, since it needs government certification anyway. ELCON wants two SROs, one for grid security, the other for commercial practices. ECAR warns NAERO plan will need new federal law, which will take "at least two years." Co-ops want lighthanded oversight, as does EEI, which says, "satisfy Constitutional requirements [for] openness and non-discriminatory processes."

Source: "Reliable Power: Renewing the North American Electric Reliability Oversight System," submitted to NERC Board of Trustees by blue ribbon Electric Reliability Panel. See, www.nerc.com/~blue/. Comments filed by: regional reliability councils (ECAR, ERCOT, MAPP, NPCC, SERC, SPP, WSCC, SPP); public and private utilities (Allegheny Power, Duke Power, Houston Light & Power, Public Service Electric & Gas, SDG&E, Sierra Pacific, SoCal Edison, Washington Water Power); associations (APPA, EEI, ELCON, EPSA, NRECA); marketers (Enron Power Marketing, NGC); regulators (Cal. PUC, N.Y. PSC, Okla. CC, Pa. PUC, Roger Hamilton from Ore. PUC, Council of State Governments [Eastern Reg.Conf.]); and advocacy groups (Project for Sustainable FERC Energy Policy [at NRDC]).

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