trans_rto.html
Northwest Power Grid Pushing Its Limits
From the NW Energy Coalition Report, March 2000
A recent study predicting power shortages in the Northwest has utilities, elected officials, and public policy makers alike pondering the future reliability of the region's electricity supply. Regardless of how the predicted shortfall is met, surging power demands promise to push the limits of an aging network of high-voltage transmission lines, already stressed by operational changes brought on by wholesale power restructuring. Increased buying and selling of electrons among utilities, independent power producers and the Bonneville Power Administration (BPA) has pushed traffic on transmission wires to an unprecedented level. Critical segments of the Northwest grid now suffer from dangerous levels of "congestion."
Long held as a key part of restructuring, the need to reform transmission is also being driven by reliability questions and an impending Federal Energy Regulatory Commission (FERC) deadline for investor-owned utilities (IOUs) .
Crucial to electric service reliability, transmission management also affects regional investments in energy conservation, renewabe resources and salmon restoration efforts. Transmission operators must grant access to electricity produced by federal dams on the Columbia and Snake Rivers when generation is neccessary to help juvenile salmon survive their migrations through the hydropower system. The Northwest's transmission link to the Southwest generates significant revenues but often results in operation of the hydropower system in a manner harmful for fish. Revenues generated by the transmission system, about 80% owned by BPA, should be used to help pay for salmon recovery.
Transmission management can drive or destroy incentives to invest in targeted energy conservation measures and distributed, or on-site, renewable resources such as home solar photo-voltaic power generators. Future governance and operation of the transmission grid must make room for the role conservation and distributed renewables can play in maintaining reliability and guarantee wind and other renewable power plants, relative newcomers among the region's power generators, fair and equal access to the transmission system.
View the complete Report article
What Are They and Why Do We Care?
In February 2000, the Federal Energy Regulatory Commission (FERC) issued an order calling on all investor-owned utilities (IOUs), and other non-jurisdictional utilities, to consider establishing independent entities to manage wholesale transmission of electricity. This action follows FERC's multi-year effort to increase competition in the wholesale electric power market.
FERC's order is technically voluntary, however, the FERC Chairman said he considers it "mandatory voluntary." So, as a result, most of the IOUs in the country are trying to comply with the order. There are two primary organizational forms of a Regional Transmission Organization (RTO) under consideration.
- Utilities which own transmission systems could sell them to a new entity that would then own and operate the transmission grid. This entity is called a Transco or Transmission company. It would be a for-profit company whose mission is to operate and manage the transmission system in a given area. As the owner of the transmission system, the Transco would be responsible for upgrades and maintenance.
- Utilities which own transmission systems could lease their systems to an entity that would operate the grid and pay the owners revenues from the use of the system. This entity is called an ISO or Independent System Operator. It is expected to be a not-for-profit organization whose mission is to operate and manage the transmission system in a given area. The owning utilities would still be responsible for upgrades and maintenance of the transmission system.
Why do we need this new infrastructure? According to FERC, "regional institutions can address the operational and reliability issues now confronting the industry, and eliminate any residual discrimination in transmission services that can occur when the operation of the transmission system remains in the control of a vertically integrated utility."
These improvements will not occur automatically with the establishment of a new RTO. And there are a number of critical issues relating to the structure and pricing policies of the RTO that have significant environmental and consumer impacts. Ensuring adequate access to the transmission system for renewable resources; using energy conservation and distributed renewable resources to solve transmission congestion problems; ensuring that electricity generated as a result of salmon restoration activities has priority access to the grid; and that pricing for transmission services benefit consumers and not grid owners are all vital components of the operation of an RTO if it is to be in the public interest. In order to ensure operation in the public interest, the management structure of the RTO must be independent of the owners of the transmission system and other market players.
In the Northwest, the Bonneville Power Administration owns and operates 70 percent of the region's transmission grid. BPA is a critical player in the NW negotiations on the establishment of an RTO. Salmon restoration is a fundamental part of BPA's public interest mission. BPA funds its fish and wildlife program with revenues from both power and transmission business lines. If, as part of participation in the RTO, BPA seeks federal legislation that allows it to split off the transmission side of the agency then full funding for salmon restoration is put in serious jeopardy.
Northwest investor-owned utilities, BPA and other large public utilities have begun discussions to assess what it would take to create a Regional Transmission Organization as envisioned by FERC. Representatives of the environmental, renewable resource and consumer advocacy communities are all participating in these discussions. It is the IOUs however that have the responsibility to submit a plan to FERC in October 2000. If no regional consensus can be developed within the region, the IOUs are free to submit their own proposal.
Below are three bullets that provide more detail on the specific elements of a public interest agenda for establishment of an RTO:
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- The RTO must be institutionally and operationally free of control by market participants and have substantial environmental and consumer advocate representation, so it can facilitate the development of efficient competitive markets; markets in transmission rights and ancillary services; markets that accommodate compliance with environmental laws; and markets which encourage demand side participation & facilitate new entrants, as well as accommodate existing competitors.
- In addition, the RTO must have sufficient size and authority to facilitate broad markets and implement transmission planning for the region. The RTO must have pricing policies that protect consumers and that send appropriate signals to all participants and resource providers, including non-traditional distributed and intermittent resources, as well as load management and conservation.
- And, finally, the RTO must have the responsibility and authority to facilitate market driven LEAST COST solutions to congestion management, to short-term system reliability, and to long-term grid enhancement, as well as prevent barriers to market entry and monitor for market power abuse. Thus, while more than one structural approach to RTOs is possible, the public interest requires that any structure adopted be able to carry out all of these tasks and, in addition, make on-going adjustments in response to changing market needs.
Prepared by: Nancy Hirsh and Steve Weiss, NWEC May, 2000
Attachment
Project for Sustainable FERC Energy Policy
Terry Black
Natural Resources Defense Council
Preface:
Because electricity is affected with a public interest, the institutions that govern its production and transmission must ensure that the public interest is served. Organizations that promote environmental quality and the provision of reliable and reasonably priced electricity services believe that non-discriminatory transmission access and competitive wholesale markets in energy services can both reduce the environmental impacts of the electric industry and assure that electricity services are provided by the market at least cost over time. Thus, public interest organizations urge participants in the RTO collaboration process under FERC Order 2000 to implement the following policies.
I. An RTO Must Be Both Structurally and Operationally Independent of Market Participants
- Its Governance Structure must be independent
- It must institutionalize broad stakeholder* input
- It must serve the public's interest in societal efficiency
- It must be structured to permit timely change
* Stakeholders include consumer advocate and environmental groups, as well as transmission owners, generators, power marketers, and other market participants.
II. An RTO Must Facilitate (or Create) Efficient Competitive Markets
- In energy imbalance services
- In ancillary services
- In transmission rights, including a secondary market
And Establish a Congestion Management Process that Leads to Least Cost Solutions Over Time
III. An RTO Must Provide for Demand Side Participation in Energy, Capacity (if any), and Ancillary Service Markets
- Demand side participation is essential for real markets
- It mitigates price spikes and market power abuse
- It is more efficient than imposing price caps
IV. RTO Markets Must Provide for Multi-Settlements to Prevent Strategic Withholding of Generation & To Promote Demand Side Bidding
- Multi-settlements are essential for efficient markets
- They are necessary to prevent generators from gaming
V. RTO Pricing Policies (Including Uplift) Must Recognize the value of, Treat Equitable*, and Avoid Penalizing Non-Traditional Electric Resources
- Intermittent generation (e.g., wind and solar)
- Distributed resources (e.g., <1 MW on customer premises)
- Load management
* Equitable treatment includes recognition of the physical characteristics of the resources (e.g., the intermittency of a wind facility, as well as the ramp time of a large coal facility).
VI. RTOs With Multiple Control Areas Must Have the Authority to Eliminate Any Commercial Advantage of Being a Control Area
- The RTO must assure that each control area operatesÑor participates inÑopen and transparent real-time balancing markets in energy and in marginal generation-related ancillary services
- It must ensure the availability of market-priced ancillary services in its control areas
- It must monitor other control area operations to identify & eliminate discrimination
VII. RTOS Must Have Boundaries Scope and Configuration That Minimize Seams and the Authority Necessary to Resolve Seams Problems
- Boundaries must be based on natural transmission networks & electric markets
- Boundaries should minimize loop flow problems & internalize constraints
- The transmission systems within an RTO must be contiguous
- Seams between RTOs must not be permitted to divide markets
- RTOs must develop MOUs and ADR procedures to handle seams problems
VIII. RTOs Must Assure That Grid Interconnection Requirements are Faily Applied to all Resource Providers
- To prevent barriers to new entrants, whether supply or demand resources
- Requirements must be transparent and must not favor TOU affiliates
IX. An RTO Must Be Structured and Managed to Facilitate Market Driven Least Cost Solutions to System Reliability Needs and Grid Enhancements
- Least cost solutions are the transmission, generation and/or demand side resources which impose the lowest long-term system costs from a societal perspective
- Market driven solutions are those implemented by market participants based on appropriate price signals and other market incentives
Back to the RTO page.