MARKING THE FIRST CASE of a voluntary agreement in a region not previously organized as a tight power pool, or compelled to act by state legislation, a group of 10 operating electric utilities won approval from the Federal Energy Regulatory Commission on September 16 to form the Midwest Independent Transmission System Operator, Inc., which will take over operational control of certain defined jurisdictional transmission facilities, provided that it complies with conditions imposed by the FERC.

The case breaks much new ground, as the ISO will not take over economic dispatch of generation, nor will it function as a single, unified control area. Instead, the ISO will exercise "virtual" operational control, taking bids for redispatch to relieve congestion. It will leave economic dispatch to individual utilities, who will continue as operators of some 30 control areas. Some regional players (including supporters of the competing Alliance project) had urged the idea of a transco - a for-profit company to own and operate the grid, and have not joined the ISO. Thus, the ISO will cover a less-than-contiguous geographic area. Docket Nos. ER98- 1438-000, EC98-24-000, Sept. 16, 1998 (F.E.R.C.).

The FERC order doesn't resolve all problems, as was made clear at the DOE/NARUC Electricity Forum, held in Houston on September 17, the day after the FERC issued its decision. There, in a Thursday afternoon roundtable discussion ("ISOs and Their Relatives"), Ohio utility commissioner Craig Glazer led a panel that featured FERC commissioner William Massey, plus David Sparby, v.p. of regulatory services at Northern States Power, Seven Walton, manager of transmission pricing at PacifiCorp, and Marvin Carraway, general manager of Clarksdale Public Utilities and one of the directors of the Southwest Power Pool.

PRICING CONCERNS. In Houston, Massey emphasized that the FERC had attempted to minimize rate shock by approving so-called "license-plate" pricing - a single, systemwide ISO transmission tariff that will yield varying rates, as each customer taking network transmission service will pay a single rate based on the cost of transmission facilities in the service area in which the customer's loads are located.

"There is a growing feeling," said Massey, "that this license plate approach avoids cost shifting. Selling into the ISO, you pay the rate for the fixed costs of the area that you are serving." Public power companies don't want to see a run-up in transmission rates from joining an ISO, added Massey, noting that license-plate pricing should help avoid that problem.

Steve Walton emphasized that the FERC's decision would sidestep the major factor that led to failure for the Indego ISO in the Pacific Northwest, where federal power marketing administrations play a major role. "In Indego, you had differentials [before-and-after pricing] of seven to one. We [Indego] drove them down to four to one, but that was all we could do.

"License-plate pricing means that generators inside the circle don't have to pay any transmission fee other than congestion charges to serve load located within the circle."

OPERATION AND CONTROL. Can the Midwest ISO succeed without functioning as the single, regional control area operator, and without full participation across a contiguous area?

"This ISO, like any other, is like Swiss cheese," said Massey. "It's got gaping holes. Larger and more contiguous would be better. The proponents and the PUCs asked the FERC to help them achieve that, but we punted on this issue. I personally would have gone further here, asking for a staged plan for consolidating the control areas."

Sparby (whose company supported the Alliance transco) and Carraway questioned how the ISO would ensure compliance by the 30 separate control areas operated by the member utilities. "A single transmission owner in an ISO will never build transmission to serve other areas," added Sparby. "There's no incentive."

Walton appeared to agree. "The Midwest [order] fails to answer a fundamental question: How can federal power marketing agencies be pulled into ISOs?" Walton warned, "Part of why Indego fell apart was because some of the control area operators did not want to give up control."

Bruce W. Radford is editor of Public Utilities Fortnightly.

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