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New FERC Chair Threatens Shake-Up of Power Industry
The change of administration in Washington D.C. brought with it an aggressive focus on building more power plants and unleashing the forces of competition to bridge the growing gap between U.S. energy demands and supplies. Last month, the new Bush-appointed chair of the Federal Energy Regulatory Commission (FERC ) heightened that focus with a sharply-worded memo to his fellow commissioners.
In his September 26 memo, Pat Wood detailed a new direction for the federal agency in strong terms calling for a ³seamless national power marketplace² and outlining plans to force the formation of Regional Transmission Organizations (RTOs ). RTOs consolidate the operation and management of high-voltage transmission lines that are currently owned and operated by multiple utilities and agencies. FERC believes a single operator would be better able to ensure overall system reliability and would be necessary to ensure power buyers and sellers have equal access to transmission lines.
Commissioner Bill Massey praised Wood for ³taking the bull by the horns,² and lamented that FERC hadn't done so sooner. Commissioner Nora Brownell shared these sentiments, saying decisive action was needed to provide certainty to power industry investors and warned market participants against debating the merits of RTOs any further. With support from Massey and Brownell, Wood, a former Texas utility commissioner, enjoys majority support for his views on the five-member FERC.
The new urgency comes in sharp contrast to the FERC approach over the last two years. In late 1999 FERC formally initiated the RTO formation process by encouraging utilities to join RTOs. The agency allowed for regional differences and relied on regional initiatives to design acceptable organizations if they met rough FERC guidelines.
In the Northwest, utilities, the Bonneville Power Administration (BPA ), consumer groups and state regulators have been working collaboratively to form RTO West. Participants have signaled that agreement on a region-specific RTO would be possible in time for a projected March 2002 filing deadline. The FERC announcement calls the entire process into question.
Under the new direction proposed by Wood, RTOs would be standardized. Different governance structures and different operating rules would no longer be allowed, much less encouraged. Instead, Chairman Wood emphasized, "Market design standardization is the goal." FERC would take over and design a single standardized RTO structure to cover (1) congestion management; (2) cost recovery for investments; (3) market monitoring; (4) transmission planning and expansion; (5) reliability and business standards; and, (6) the nature of transmission rights.
Under Wood's plan utilities could no longer join an RTO voluntarily. Instead they would be forced to join a FERC-approved RTO by Dec. 15 of this year or the agency will strip their authority to sell into the wholesale power market. Even public utilities, not usually under FERC jurisdiction, would be required to join or face penalties.
Wood also stated RTO West should "marry up" a Southwestern RTO group not now involved in the RTO West collaborative. FERC also wants California to join but recognizes the state faces unprecedented turmoil in its electricity industry. The Commission plans to "audit" California before taking further action.
Finally, Wood dismissed any doubts that the benefits of forming these RTOs were worth the costs and potential system disruptions. He seemingly directed studies to justify his foregone conclusion, stating in his letter, "We should complete cost/benefit studies to demonstrate to those for whom the balance is not self-evident that RTOs yield significant customer savings."
The result of Wood's announcement on RTO West is hard to measure this soon. However, the shifting of RTO design to FERC may make it even harder for public interest groups to make an impact on RTO decision making. Environmental and consumer groups want a formal voice in RTO proceedings to ensure they have the opportunity to propose alternatives to building new transmission facilities, which can be environmentally damaging, expensive, and can pave the way for new power plant construction.
Before Wood was appointed, RTO West and its collaborative process had been praised by FERC as a model for other regions of the country. Participants in RTO West still hope to design their own system ‹ one that would reflect the unique challenges power managers face in the region. For example, an RTO tailored to the Northwest could allow BPA special access to the transmission system to sell excess power during the spring snowmelt when the agency also needs to increase river flows for salmon migrations.
Steven Weiss & Mark Glyde