"THESE ARE THE DOG DAYS OF DEREGULATION." That's how Federal Energy Regulatory Commission chairman James Hoecker put it last month in Houston at his luncheon talk at the Sixth DOE/NARUC National Electricity Forum. He bemoaned the "evidence of delay" in restructuring that now "clearly exists."
Don't be fooled. What Hoecker has up his sleeve is nothing less than a full-scale overhaul of FERC Orders 888 and 889. I could see no other explanation as I sat in the audience, listening as the chairman acknowledged that transmission markets are still plagued by discriminatory practices, in words that sounded very much like they could have come from John Anderson (at ELCON), Steven Kean (Enron), Kathryn Patton (Dynegy), or any number of other executives from power marketers or their ad hoc coalitions who have been complaining for some time now about abuses by transmission-owning utilities. Further evidence shows up on page 19 in the order of Sept. 16 approving the Midwest ISO, where the FERC promised a rulemaking "or other generic proceeding in the future" to address regional coordination.
Yet this sequel to Order 888 is destined not just to strengthen ISO formation or to rehash the transco-ISO debate, but to spark a revolution.
IT'S TRUE, OF COURSE, that last April the FERC held a public conference to examine the future of nonprofit regional independent system operators, which would control transmission still owned by utilities, and various alternatives, such as for-profit transcos, which would both own and operate the grid. In fact, as a follow-up to that April meeting, the commission held seven regional conferences at locations around the country between May 28 and June 8, 1998. These meetings addressed specific regional characteristics and institutional factors that bear on the formation of ISOs. Many ideas emerged, including models such as a "wireco" and the so-called "transco-lite." (A wireco is a for-profit wire-system manager that takes its operating instructions from an ISO. A transco-lite owns some, but not all, of the grid in a given region.)
Nevertheless, I believe Hoecker has left the ISO thing far behind. I say he has come 'round to a more complex idea - a vision of transmission as a commercial enterprise. If he hasn't, he should. No one has said it better than did the coalition led by Anderson's Electricity Consumers Resource Counsel, in the petition filed at the FERC on March 25 by attorney Jeffrey Watkiss: "The very concepts of load server and native load are anachronisms that should be replaced with the nomenclature of markets: seller and buyer." On Sept. 21, the Electric Power Supply Association weighed in with comments supporting the petition. And DOE Secretary Bill Richardson lent further support when, on Sept. 29, he authorized the FERC to divide the country into districts to promote regional coordination.
Can Hoecker achieve this new vision for transmission? Commissioner Massey, for one, seems on board, judging from his comments in Houston at the ISO breakout session, held in the next room right after Hoecker closed his luncheon talk. There's a catch, however, since the FERC lacks authority over public power entities, who may oppose reform if it means higher rates. What Hoecker really needs is a clean slate.
DURING THE PAST YEAR, especially in cases debating how to set reliability standards, or whether transmission line relief rules exacerbated the summer price spikes in the Midwest, power marketers have argued that preferences for native load have allowed transmission-owning utilities to understate available capacity on OASIS nodes, discriminating against transmission-dependent players.
Hoecker gave voice to such claims in his Houston speech: "We hear repeated complaints about the accuracy of determinations of total and available transmission capacity. ¼ Line loading relief procedures and curtailment priorities also raise questions about whether transmission owners can manipulate the system." Similar charges emerged in the Midwest ISO case. According to Blue Ridge Power Agency, the ISO's transition plan would allow grid owners to shelter most of their bundled retail loads from the terms and conditions of tariff service imposed on unbundled wholesale customers, virtually ensuring, added Blue Ridge, that the ISO would provide noncomparable transmission service for at least six years.
The answer lies with a new industry to operate "merchant transmission." At the regional ISO conference in Richmond, one witness, a Dr. Raymond Coxe, urged the FERC not to let ISOs block grid competition. He warned against any presumption that current transmission owners must be the builders and owners. Coxe urged the FERC to encourage ISOs to accommodate individual users willing to build transmission as entrepreneurs.
Note that in Houston, Massey dispelled any notion that incentives should favor transcos over ISOs, or that the issue is even important. His comments came in a wonderful exchange with Steve Walton, manger of transmission policy at PacifiCorp, David Sparby, v.p. of regulatory services at Northern States Power, and Jan Smutny-Jones, executive director of the California ISO.
Massey: "The [Midwest] order does not express any opinion on whether you need a gridco, transco, transco-lite or an ISO ¼ I don't accept the notion that only a transco can get transmission built in a constrained area."
Sparby: "I disagree. A single transmission owner in an ISO will never build transmission to serve other areas. There's no incentive."
Walton: "No, There will be a valid incentive [with ISOs]."
Smutny-Jones: "I'm skeptical of transcos. A transco will only look at building transmission. It won't look at alternatives. We're looking [in California] at other ways to add transmission, perhaps by load shedding or building generation."
Massey: Entergy is thinking about a filing at the FERC that will put their transmission in an independent trust, run by a trustee."
Walton: "Like in a wireco. The transco just builds the transmission and keeps it up in the air. Then you have an ISO who controls it."
Massey: There's a refined line of thought out there that transco vs. ISO is not an either-or decision. Even if you have a transco, you will still always need an ISO in tandem to distill the will of the parties and determine the best course to take in operations and capital investment."
THE REAL PROBLEM lies with pricing. The Midwest order approves "license-plate" pricing. That means that each customer taking network service pays a single rate based on the cost of transmission facilities in the service area in which the customer's loads are located. This compromise proved unavoidable, as other methods could have led to higher prices, discouraging ISO participation by public power agencies. (See, "Midwest ISO Wins Nod," this issue, p. 19.)
The FERC virtually conceded in its Midwest order that it was bowing to pressure from grid users who would otherwise balk at paying rational prices for transmission service. And some of those users operate outside its jurisdiction. Said the FERC: "[A] uniform composite rate might be appropriate if a regional transmission grid was first under construction, but we are not working on a clean slate."
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