Electric Transmission: Do State Regulators Still Have a Voice?

Fortnightly Magazine - November 15 1999

How the FERC's RTO case has split the PUCs into five warring factions.

With momentum building for competition in retail energy markets, and with the real authority seeming to shift to the federal government, do regulators at the state public utility commissions (PUCs) still have a voice in setting policy for the electric transmission grid? After all, the Federal Energy Regulatory Commission enjoys exclusive jurisdiction over interstate transmission service. That's the one major utility sector likely to remain heavily regulated for some time.

Even so, some state PUCs appear to be gaining a measure of turf in the transmission sector. That is occurring as state legislatures pass new restructuring bills that purport to grant authority to PUCs to review the conditions by which utilities may transfer their transmission assets to new grid institutions, such as ISOs (independent system operators) and transcos (independent, for-profit transmission companies).

This surprising trend emerges from comments filed by state PUCs late this summer and in the early fall in Docket RM99-2-000. In that proceeding the FERC set guidelines, structures and functions for regional transmission organizations, also known as RTOs.

Consider the states of Ohio, Virginia and Wisconsin. Each has passed a law requiring jurisdictional electric utilities to transfer control of transmission facilities to a regional transmission entity (RTE), which might operate as an ISO or a transco. These laws are drafted in a way that will require state regulators eventually to pass judgment on the qualification and attributes of the new state-mandated ISOs or transcos, even as the FERC proceeds to set its own benchmarks for federally regulated RTOs.

Conflicts are bound to arise.

The Virginia statute says that state rules must be consistent with FERC requirements. But the law nevertheless contains its own definition of the term "independent system operator." The Virginia law also grants authority to the state commission to compel the RTE to expand grid capacity (or, in the case of a transco, to require such action from the persons owning or controlling the transmission facilities).

The Wisconsin statute says the ISO or transco must control all the state's transmission service. Contrast that requirement with the "Swiss cheese" holes that emerged in the FERC-approved Midwest ISO, where MISO decidedly will not control all transmission service in Ohio, or in other states in which it operates. The Wisconsin ISO also gets authority to direct utility transmission owners to expand the grid. That's a prerogative not seen in the list of four characteristics and seven functions set out for qualifying federal RTOs in the FERC's notice of proposed rulemaking. The Virginia State Corporation Commission highlighted the potential for confusion earlier this year in its decision inviting comments on how it should manage the transfer of transmission control to a state-mandated grid institution:

"In specifying the criteria by which we will evaluate our utilities' compliance with their state law obligations, we will need to address the intersection between these criteria and [the] FERC's eleven ISO principles." The Virginia regulators then added: "[W]e seek comment on how the [Virginia] commission might best integrate its own rules and regulations