The Rules of the Grid: Transmission Policy and Motives Gehind It

Making sense of RTO Week, the mediation talks, and FERC's promised new rulemaking.
Making sense of RTO Week, the mediation talks, and FERC's promised new rulemaking.
Fortnightly Magazine - December 2001
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Making sense of RTO Week, the mediation talks, and FERC's promised new rulemaking.

Dynegy's senior vice president Peter Esposito didn't think much about the celebrated mediation talks on forming a single, unified transmission grid for the Northeast U.S.

"We spent 45 days talking about process," he said. "We never got to specifics. FERC needs to step up to the plate and tell the RTOs what to do."

Yet that may be just what FERC Chairman Pat Wood has in store.

Just two weeks after he had brought the curtain down on RTO Week, ending the marathon five-day workshop (Oct. 15-19) on the fundamentals of operations and markets for electric transmission at his new-look Federal Energy Regulatory Commission (FERC), Wood was still searching for answers to help him issue the sort of detailed instructions that Esposito and Dynegy longed for.

And, as if not fully satisfied with the ideas that came out of the workshop, Wood on Oct. 30 took the unusual step of lifting the Nov. 5 due date for comments, and asking the industry yet one more time to weigh in with suggestions on how to restructure the electric transmission sector. That set the stage for what was widely expected to be a new, improved, second-chance notice of proposed rulemaking (NOPR) on regional transmission organizations (RTOs). Those new rules, to come out as early as November or December, would set out a clear blueprint of how an RTO should behave.

And not a moment too soon. The original rulemaking, Order 2000, set a deadline of Dec. 15 for RTOs to win final certification. With full compliance looking ever more doubtful, some suspected that FERC would extend that date as well, as part of its second NOPR.

To find the cause for the commotion, look no further than a pair of reports issued in September, and the reactions from utilities, power producers, trade groups, and state regulators. One report came from FERC administrative law judge (ALJ) H. Peter Young, on mediation efforts to create a single RTO in the Northeast United States (NERTO), combining the independent system operators (ISOs) for PJM, New York, and New England. The second concerned mediation talks underway in the Southeast, and was issued by FERC ALJ Bobbie J. McCartney. Those two proceedings show the true nature and depth of the stalemate that so far has blocked progress on the RTO front.

On one side, FERC policy demands that any new RTO must form a board of directors that qualifies as "independent" of market participants, including transmission owners. It is this independent board that must lay down the rules for grid operation and market design. It is this board that must direct the RTO in filing rules and tariffs with the FERC.

On the other, the transmission owners (TOs) want to control the process. They demand the right to set the rules themselves-before handing control of their assets over to the RTO-. The TOs point to Section 205 of the Federal Power Act. They say the law guarantees their right to propose and file tariffs to recover