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RTOs and the Public Interest

Defining the mission when the consumer plays second-fiddle to the needs of the market.

Fortnightly Magazine - September 2009

Here’s a morsel to chew on.

Six months back, when ISO New England was mulling over various reforms that FERC had mandated last fall in Order 719 for the nation’s six regional transmission organizations and independent system operators (RTOs and ISOs are interchangeable terms in this column), the ISO refused point blank to include in its mission statement a proposal by stakeholders that it should operate the bulk power system at the “lowest reasonable cost.”

“The reference to just and reasonable rates is inapposite,” the ISO wrote, in its compliance tariff filed with FERC in late April. Such a requirement, the ISO added, was a “misunderstanding of the ISO Tariff and ISO-NE’s role in the region.”

In particular, the ISO begged off any expertise or authority to opine or judge the merits of any market outcome:

“ISO-NE is not a regulator. ISO-NE is thus not in a position to ensure just and reasonable rates; this is the Commission’s role.”

In fact, FERC Order 719 had instructed each RTO to post on its Web site a “mission statement or organizational charter” to pin down its purpose and guiding principles, plus its “commitment to responsiveness to customers and other stakeholders, and ultimately to the consumers who benefit from and pay for electricity services.”

This directive, of course, was simply one of many. In addition, Order 719 mandated a number of reforms at RTOs, on issues such as governance, long-term contracting, responsiveness to stakeholders (for example, rules on the release of bid-offer data to market participants and state regulators), market monitoring, and most important, demand response and scarcity pricing——the idea of allowing rates during times of reserve shortages to more closely track the “value of service.” (Order No. 719, ¶556, Oct. 17, 2008, Docket RM07-19, 125 FERC ¶61,071).

And not just New England, but each covered organization—PJM, New York ISO, MISO, CAISO, the Southwest Power Pool—has submitted its own compliance tariff, and faces its own unique set of stakeholder issues.

Market Power and Conflict of Interest

In PJM, for example, the debate centers on market monitoring. Two years after the RTO was rocked by charges of management interference with its then-internal market monitoring (MM) unit (see “ Pulling an Inside Job ,” this column, May 2007 ), PJM now has included rules in its own proposed Order 719 compliance tariff that many critics see as having the potential to undo the settlement approved by FERC in March 2008, by which PJM had agreed to restructure its internal MM unit as an external office, independent of management and answerable only to the RTO’s board of directors.

In more precise terms, PJM now has proposed that its management would allow its external MM unit to furnish the RTO with operational data from supply-side resources, known as market “inputs,” but that PJM will choose not to be bound by such analysis when it implements market-mitigation rules under its tariff.