Bottom Line Energy Issues - FERC Moves Into Uncharted Territory - User Response Needed

May 29, 2002
May 2002 - Part 3
FERC has put power transmission issues at the top of its agenda because it believes deregulation cannot move forward unless and until there is the equivalent of a national highway system to enable unbridled interstate connections of power generators with local area retailers. FERC has jurisdiction authorized in the Energy Policy Act of 1992 and guaranteed under the interstate commerce clause of the U.S. Constitution. FERC ordered all electric utilities to voluntarily consolidate their transmission lines into four to six Regional Transmission Organizations (RTO) or lose their rights to compete in deregulated wholesale markets, but its implementation has been rocky at best. FERC noted in testimony to Congress on present energy legislation that the long running move toward deregulation would be lost if a lack of uncertainty cools the enthusiasm of  private investors. Chair Pat Wood observed that diluting FERC’s power in the process could derail the vital expansion of the grid’s transmission capacity. But, it seems this goal is being thwarted by states-rights advocates who want responsibility for control and reliability of the system vested with the states. A number of states are reluctant to grant Washington authority over such matters as where new lines should be built. As noted above, the Senate energy bill follows this line. Many technical and political issues remain undecided. Due to its fragmentation, the system presently is very fragile and open to terrorist attacks throughout its isolated and unguarded remote locations. Without definite vested financial interests by its utility owners, the system is rapidly deteriorating from age and lack of maintenance, and its capacity is falling way behind growth forecasts. FERC has identified transmission choke points causing transmission  congestion scattered across the  county that would cost an estimated $12.6 billion to fix. In August 1999 there were 70 and in August 2000 there were 180. User groups initiated and drove the development of competitive wholesale power, and it might be necessary for them to organize a similar effort to assure themselves of a safe, reliable, and economical transmission system. As one retailer advertises, “An educated consumer is our best customer.” You could start by reading “Power to the People, Electric Power Deregulation, An Expose” by Jack Duckworth. He notes, “You can’t all of a sudden change the use of a complex system to accomplish something other than it was intended to do and not expect severe consequences.” Nevertheless, that is the present direction. Unlike gas, electricity cannot be stored and must be generated at the instant of use. That distinction makes all the difference.The Midwest Independent System Operator was approved by FERC last December, and it is now attempting to merge with the Southwest Power Pool (SPP). This combination would operate an interconnected transmission system covering more than 120,000 MW of generating capacity in 20 states. The competing Alliance RTO has been told by FERC that it must join the MISO by the end of May. The PA-NJ-MD PJM Power Pool is the FERC role model in the Northeast, although the New York ISO and the New England ISO want to see a larger consolidation. A coalition of utilities filed with FERC for approval of the RTO West proposal. The CA ISO is resisting being absorbed into RTO West. FERC has permitted it to operate separately under consideration of the  special CA circumstances pending its deregulation restructuring. A new management team has been picked by utilities attempting to organize SeTrans, an RTO that would serve eight Southeastern and Gulf states, but no timetable is set for its operation. FERC maintains a policy that for-profit independent transmission companies (ITC) cannot serve as RTOs, to assure centralized planning, pricing, and operations. But, it is encouraging system consolidations through purchases by ITC buyers. One is the U.K. company, National Grid, that has bought into U.S. systems. Others include Trans-Elect Corp. and TransLink Transmission Co. Such firms are being formed from combinations of utilities that no longer want the full financial risks of the transmission system on their balance sheets if they must cede control to some RTO. It also puts welcome cash in their coffers. This trend is significant because it forecasts restructuring of the hundreds of utility owned transmission systems into possibly 15-20 consolidated privately owned systems. FERC approved the most recent acquisition by Trans-Elect with Commissioner Nora Mead Brownell saying, “This is the business model we have been encouraging, and frankly, we have great expectations.” These deals cost millions and realignment of financial packaging is making some new bedfellows. GE Capital Global Energy is a partner with Trans-Elect, in addition to CIBC World Market Corporation and Deutsche Banc Alex Brown, Inc. Another complication is injected by the transmission systems presently owned by federal power systems including TVA and Bonneville. FERC has ordered these systems to join an RTO to avoid the issues of “seams” that would be created at the points of interconnection between federal and private systems. TVA has agreed to join with the consolidated RTO composed of MISO and SPP.FERC believes that a federally regulated small number of RTOs also would help simplify the present complexity of tariffs, the prices that utilities charge for transmitting power over their lines. A revolutionary pricing strategy called “locational marginal pricing” (LMP) implemented in New York was recently upheld in a court decision that could set new tariff standards nationwide. These kinds of developments in transmission system realignment will affect your cost and relationships with energy suppliers for years to come.

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