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Commission Watch

ISO New England dares to dream, again.
Fortnightly Magazine - December 2003

Commission Watch

ISO New England dares to dream, again.

ISO New England (ISO-NE) wants to become a regional transmission organization (RTO). But just the idea-prior to any official filing at the Federal Energy Regulatory Commission (FERC)-has come under attack. ISO-NE is going to find rough waters ahead, despite a three-year effort aimed at a smooth transition to becoming an RTO. And now with the Oct. 31 filing of the 2,000-plus-page RTO proposal at FERC, the stage is set for these battles to be fought, again.

ISO-NE already has had to answer, albeit informally, to a group of attorneys general and consumer advocates upset by their beliefs that the new structure would raise rates. Connecticut Attorney General Richard Blumenthal and Massachusetts Attorney General Tom Reilly led the attack, arguing that New England consumers could be stuck with an added tab for energy costs of between $40 million and $70 million if the RTO proposal is approved. Blumenthal and Reilly, joined by the Rhode Island attorney general and consumer counsels in Connecticut and New Hampshire, and the public advocate in Maine, commissioned a study by Synapse Energy Economics Inc. to discern the cost impact of the transition to an RTO.

Concerns arose because becoming an RTO allows owners of transmission assets to become eligible for FERC's incentive pricing mechanisms. According to the Synapse study, , incentive pricing would cost $40 million to $70 million annually, but over a 19-year period, that balloons to $850 million to $1.4 billion in added costs. The report snidely refers to such costs as "bonus payments to monopoly service providers, who already have an obligation to build new facilities and already have an RTO-like organization." At the same time, Synapse notes ISO-NE has not quantified the resulting benefits to ratepayers.

Not true, says ISO-NE. Gordon van Welie, ISO-NE president and CEO, responded to the concerns of the six agencies. Welie clarified that the RTO proposal does not "create or authorize any transmission incentives or rates-let alone automatic rate increases." Instead, FERC merely has made transmission incentives available, he says. FERC is as likely to lower or maintain rates as it is to increase rates, van Welie argues.

But ISO-NE may be playing the semantics game. ISO-NE spokeswoman Ellen Foley stressed that ISO-NE wrote the letter to point out that the incentives are not part of the RTO filing but will be dealt with separately at the FERC. "Any kind of incentive that the transmission companies would be eligible for-be it for joining an RTO, building new transmission, or creating an independent transmission company-all of those incentives are separate from the RTO filing," Foley said.

That said, ISO-NE on Oct. 2 released information on the expected impact of the return on equity (ROE) filing, which accompanies the RTO filing. It notes the transmission owners are asking for an ROE of between 12.5 percent and 13.5 percent, but the ISO adds that there is no way to predict the outcome at FERC of any ROE request.

The transmission owners also are asking for incentives, which ISO-NE notes are "in-line" with FERC's