It would join an RTO but dictate the terms-a dangerous game that has the industry talking.

It would join an RTO but dictate the terms-a dangerous game that has the industry talking.

Fortnightly Magazine - November 1 2003

When I talked a few months ago with AEP President and CEO Linn Draper Jr., he discussed how his company would have joined the PJM RTO in March were it not for the backlash he was getting from certain state regulators.

Today, nothing has really changed. The company promises to participate fully in an RTO by July of next year-but again only if state PUCs raise no objections (hardly likely, since several state commissions have indicated recently that they will oppose PJM membership for AEP in 2004, out of concerns over reliability and market power.)

But do the states protest too much? Should FERC step in, push aside the PUCs and bring AEP to heel? At least one rival company thinks so. Just listen to Exelon Vice President Elizabeth Moler.

"State regulatory proceedings that purport to prohibit AEP from joining PJM are directly and deliberately impeding federal policy over interstate transmission," said Moler, testifying before FERC in early September.

"The actions by the states amount to unconstitutional efforts to burden interstate commerce in favor of the citizens of their own states. … Those state actions … impede reliable interstate transmission service … throughout the PJM-MISO footprint," she added.

Moler, herself a former commissioner and chairman at the Federal Energy Regulatory Commission (FERC), believes the feds have the power to exempt AEP from state compliance with that state action under PURPA. Such power would not threaten Exelon, of course, since its Chicago-area subsidiary, Commonwealth Edison, appears truly committed to RTO membership.

"In section 205 of PURPA," Moler explains, "Congress authorized the commission to exempt utilities from state laws and regulations that purport to prohibit the voluntary coordination of electric utilities." Draper admitted as much when he told the Fortnightly only a few months ago, "FERC is going to have to assert its authority one way or another."

Many believe FERC's fear of Congress as it develops an energy bill has been the chief reason we have not seen a more assertive commission, and also the reason AEP's foot dragging and hack proposals have been tolerated. Conversely, some argue that FERC is to blame for not using a bigger stick.

But AEP, beyond risking instability in energy markets by scuttling a proper functioning market, also sets a bad precedent in its delay of fulfilling a long-ago merger promise. And as utility CEOs begin to look ahead to an improving economy, AEP's stance could interfere with possible mergers that might be planned for the region.

Maneuvering for Advantage

But why be so hard on AEP? Shouldn't it be permitted to chart its own course, as Exelon and Com Ed are doing, with Moler in tow?

Terry S. Harvill, director of regulatory affairs for the Detroit Edison Co., in testimony before FERC, seems to suggest just that.

"Both Com Ed and AEP plainly stated their individual RTO choices," says Harvill. "The conditions they place on RTO participation," he adds, "are based on the individual business interests of their