No. 1 priority: ensuring power grid reliability

No. 1 priority: ensuring power grid reliability

Matthew Cordaro

President and CEO

Midwest ISO

While electric industry deregulation is moving at varying speeds in different parts of the country, it has become clear to virtually everyone that electric industry deregulation will become reality, and it is vital that important issues concerning electric industry restructuring are addressed.

I believe that establishing a fair and workable nationwide transmission system is the key to a favorable outcome for the restructuring of the electric industry. The high-voltage interstate transmission system we have in place now was not designed for a competitive marketplace; it was generally designed to move power from a utility`s generators to its own load centers. Interconnections between utilities were established for emergency situations, to share installed generation reserves, and-occasionally-to take advantage of a neighbor`s lower cost generation. Historically, the system worked well because utilities did not compete with one another.

In a deregulated market, utilities that formerly cooperated with each other now compete. And there are many different types of electricity providers-not just the traditional electric utility. As the number of participants increases, so does the number of transactions on the system. Now the interstate transmission system is being called on to move vast amounts of electricity from one region of the country to another, and between the U.S., Canada and Mexico.

A new electric reliability oversight system is needed to ensure continued reliability of the interstate high-voltage transmission system while supporting robust competition in electricity markets. Whatever system ultimately develops, whether it be a regional transmission organization (RTO), Transco, or an independent system operator (ISO), it must be fair and equitable to all parties involved, and the Federal Energy Regulatory Commission (FERC) is struggling to do just that now.

To be successful, a nationwide transmission system must:

– meet the needs of customers,

– provide reliable and low cost delivery, and

– provide for open access to facilitate wholesale competition.

First and foremost, the high degree of power grid reliability we`ve come to expect must be ensured. The development of an independent, self-regulating entity-with government oversight-is, I think, the best way to develop and enforce compliance with reliability rules for the interstate transmission system. The reliability rules must be made mandatory and enforceable, and those rules must apply fairly to all entities that own, operate, and use the transmission system.

The six ISOs presently in existence (California, New York, the Midwest, New England, the PJM, and ERCOT in Texas) are nonprofit and, as the name says, independent operators. Some investor-owned utilities (IOUs) have proposed a for-profit Transco concept whereby the IOU spins off its transmission business into a separate entity, although no Transcos have been approved as yet.

Public power companies, including the Large Public Power Council (LPPC) and the National Rural Electric Cooperative Association, have raised objections to the proposal charging that its structure appears to conflict with the ISO principles of independence, governance, and conflicts of interest, and these groups countered with their own not-for-profit Transco proposal.

As a variation of the RTO concept, five Eastern and Midwestern IOUs (American Electric Power, Consumers Energy, FirstEnergy Corp., Virginia Power, and Detroit Edison) recently announced a proposed regional transmission organization that addresses the independence of governance issue by establishing an independent “publico,” or publicly held company, that would run the proposed transmission company, or Transco.

These are some of many ideas that are presently being bandied about, but the bottom line is that, in order to work successfully, the independence and transparency of the transmission system operations and the need to separate generation interests should become a high priority.

On another issue, transmission owners should be provided full cost recovery, but no windfall profits. Transmission rates have historically been cost based. Any transmission proposal must continue to encompass this basic concept, and avoid the potential for “windfall” incentives as a result of asset churning or market-based pricing.

And, transmission policy should provide for and encourage regional solutions, not nationally imposed mandates. The federal government, FERC, and state governments should all work to provide the tools and environment for the appropriate regional solutions to emerge, which capture the uniqueness of the physical, political, and economic circumstances of any given region.

The stakes are high, and it will be interesting to watch as these issues continue to be debated. The interstate high-voltage transmission system is the backbone of the nation`s electricity infrastructure and is critical to public health, safety, economic well-being, and national security. We must get this right.

Cordaro`s comments are excerpts from a speech presented to the UTC Conference in June. He was then president and CEO of Nashville Electric Service. As of August 1, he was named as the first president and CEO of the Midwest Independent Transmission System Operator (Midwest ISO).

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