By the OGJ Online Staff
HOUSTON, Sept. 26, 2001 – The law judge overseeing talks to create a Southeast regional transmission organization proposed federal regulators adopt a model supported by most private market participants in the region but not municipally owned utilities and cooperatives.
Federal Energy Regulatory Commission Law Judge Bobbie J. McCartney said in a report to commissioners the so-called “collaborative governance model” incorporates compromises among sponsors of GridSouth and GridFlorida and Entergy Corp.
The munis, cooperatives, and Southern Co., Atlanta, Ga., supported an alternative approach dubbed the “independent system administrator model.” However, McCartney said the collaborative governance model was better developed and more clearly in compliance with the requirements of Order 2000 based on a “best practices” analysis of other RTOs that have received commission approval.
FERC ordered mediation talks to form a single regional RTO in the Southeast July 12. FERC commissioners ordered similar talks in the Northeast. FERC Order 2000 required RTOs be of sufficient size and configuration to permit the RTO to maintain reliability and support efficient and nondiscriminatory power markets.
McCartney asked commissioners to adopt the proposal to the “fullest extent possible” because it represented a “delicate balance of compromise,” which could be jeopardized if one or more of its constituent elements were materially changed. About 200 market participants representing diverse interests took part in the 45 days of negotiations.
The judge also recommended FERC commissioners give the parties additional guidance with respect to its determination which model best meets the commission’s expectations as a platform for a Southeast Power Grid RTO.
Absent clear endorsement of its preferred model, McCartney warned an “impasse will continue with the parties polarizing to their respective models” and a “significant window of opportunity for reaching a sustainable RTO model will have been closed.”
Supporting the collaborative governance models were sponsors of GridSouth, including Carolina Power & Light Co., Duke Energy Corp., and South Carolina Electric & Gas Co.; the sponsors of GridFlorida, including Florida Power & Light Co.; Florida Power Corp., and Tampa Electric Co.; and Entergy.
SPP-Entergy break up
McCartney said a proposed joint effort between Entergy and the Southwest Power Pool (SPP) broke down, and SPP couldn’t agree to a partnership with any of the Southeast plan sponsors. The judge said SPP should continue talks to join a Midwest RTO.
Under the collaborative approach, the organization would be made up of an independent for-profit transmission company with an independent board of directors selected by stakeholders acting as the RTO. The transco would delegate by contract certain RTO functions to an independent market administrator.
Public power entities and other transmission owners would have three options for participating. They could divest their facilities to the transco, transfer operational authority over their facilities to the RTO, or they could divest or transfer control to an independent transco.
The judge said the split between the transco and the independent market administrator appeared to be the best way to establish a financially strong transco that will have significant facilities divested to it and to allay the perception of potential bias in RTO operations.
“I strongly recommend that this split of functions not be revised,” McCartney said.
A board selection committee would select 8 candidates from a pool of 12 proposed by a search firm so that no market participant or class of participants would have control of the board selection process. For transmission pricing purposes, the RTO would consist of four regions, subdivided into zones.
Each region would adopt its own method of determining what facilities would be under RTO control and included in the rates. Each region would be required to develop a plan to eliminate zonal charges in the 10th year of operation.
McCartney said the scheme recognizes the fact that existing facilities represent sunk costs and shifting the costs among RTO customers will “tend to discourage RTO participation without achieving offsetting efficiency benefits.
“This approach also recognizes the concern of state commissions related to cost shifts by providing for a reasonable phase-in to regional charges for existing facilities,” the judge explained. The plan also addresses congestion management, transmission planning, and interregional cooperation.
Supporters of the independent system administrator model represent owners of about 38, 000 miles of transmission assets, including 11,000 miles not subject to FERC jurisdiction. The transmission facilities cover most of Alabama, Georgia, and part of northern Florida, a significant portion of Mississippi, and much of South Carolina.
McCartney said the model differs from the collaborative scheme in that it relies on an independent, incentive-driven, third-party operator that will manage but not own transmission facilities dedicated to the RTO. Public power sponsors feel it wouldn’t have institutional bias favoring one group of transmission owners with respect to decisions affecting all owners, the judge explained.
McCartney said investor-owned utilities, independent generators, and marketers largely supported the collaborative governance model.
State regulatory commissions in the region continued to express doubts about the need for the organization citing fears of higher costs and the possibility a “postage stamp rate” for transmission would produce cost shifting, thus creating winners and losers. The judge said others believe the RTO will usurp state jurisdiction over retail transmission rates and force the states into restructuring their electricity markets.