RTOs evolve in response to FERC Order 2000

Lawrence Alexander, Jonathan Abe, and Christopher Clark,
EFI

The U.S. electric transmission industry has under- gone significant change over the past year. With a vast number of issues still unresolved, the industry can expect continued transformation this year.

In its recent landmark Order 2000, the Federal Energy Regulatory Commission (FERC) artic- ulated its vision of a national transmission grid controlled by Regional Transmission Organizations (RTOs), large entities that would facilitate electricity transmission on a regional basis. By reducing the number of entities through which electricity must flow as it travels from the generator to the end user, the designation of RTOs will create efficiencies in the competitive wholesale market.

This article provides background on the driving forces behind RTO development and summarizes regional RTO initiatives throughout the United States.

FERC Order 2000

The broad principles outlined in FERC Order 2000 encourage market participants to devise innovative ways to comply. Four minimum characteristics for RTOs are outlined:

  • independence from market participants;
  • appropriate scope and reg-ional configuration;
  • possession of operational authority for all transmission facilities under the RTO’s control; and
  • exclusive authority to maintain short-term reliability of the grid.

These characteristics are inte- nded to ensure non-discriminatory access to the transmission grid for all market participants, while maximizing efficiency of operations by eliminating multiple transmission entities.

FERC Order 2000 encourages smaller transmission entities to join together into larger RTOs. This has prompted a flurry of new RTO filings and the designation of numerous working groups as stakeholders seek to modify their existing organizations.

Types of initiatives

Since FERC issued Orders 888 and 889 in 1996, various types of transmission entities have evolved:

  • Independent System Operator (ISO)-A centralized, neutral not-for-profit entity that oversees one or more control areas.
  • ISO-lite-A not-for-profit entity that exercises neutral and indirect control over control areas.
  • Independent Scheduling Administrator (ISA)-A not-for-profit entity that manages regional transmission, but does not administer an open access transmission tariff. ISAs may evolve into ISOs.
  • Independent Transmission Company (ITC or Transco)-A for-profit entity that both owns and operates the transmission system. In some cases, a Transco might operate under the jurisdiction of an ISO.
  • Transco-lite-A for-profit entity that owns only a portion of the system that it operates.

Summary of RTO Initiatives

As the accompanying chart indicates, 17 U.S. regions have established or are actively exploring the development of some type of ITSO.

Five ITSOs, representing approximately one-third of U.S. generating capacity, have begun operations: California ISO (CAL ISO); Electric Reliability Council of Texas ISO (ERCOT-ISO); ISO New England (ISO-NE); New York ISO (NYISO); and PJM Interconnection, LLC (PJM).

Four regions have ITSOs in relatively advanced stages of development: Alliance RTO (Alliance); Desert Southwest Transmission and Reliability Operator (Desert STAR); Midwest ISO; and Southwest Power Pool ISO (SPP ISO).

Three ISAs are in development: Arizona Independent Scheduling Administrator (AISA); Northern Maine Independent Scheduling Administrator (NMISA); and Mountain West Independent Scheduling Administrator (MWISA).

Plans for regional coordination have begun developing for several other entities, including some involved in other RTO initiatives: Entergy Corp.; FirstEnergy Corp., Florida Reliability Coordinating Council (FRCC); Midwest Independent Transmission Company; and Western Interconnection Organization.

Some ITSO proposals have faltered, or have been placed on indefinite hold:

Independent Grid Operator (IndeGO) and Rocky Mountain ISO (RMISO). Efforts to create IndeGO o

Mid-Continental Area Power Pool RTO (MAPP RTO). MAPP RTO would have provided transmission-related functions to eight western and mid-western states and parts of Canada. In early December 1999, MAPP members rejected a comprehensive MAPP RTO proposal. Presently, the MAPP Executive Committee is deciding whether to proceed with a modified RTO proposal, integrate with neighboring transmission entities, or abandon the effort.

States Power Co. and Alliant Energy Independent Transmission Company (ITC). Northern States Power Co. (NSP) had proposed an independent transmission company that would own and operate NSP transmission facilities in Minnesota and portions of Wisconsin, the Dakotas, and Michigan. Alliant Energy joined in these plans. However, after NSP agreed to have its merger agreement with New Century contingent upon its entry into the Midwest ISO, the proposed ITC split up.

The only region of the United States that has not pursued RTO development is the Southeast. The Southeast Reliability Council (SERC) maintains that more discussion is necessary before it pursues the development of an ITSO.

Outlook

Continued industry transition is likely to be a predominant theme:

  • FERC Order 2000. Initial rulings by FERC, such as its responses to filings by the Alliance and Midwest ITC, have set the tone for the upcoming year.

  • Federal restructuring legislation. It is unlikely that in the near future FERC will be given more control than it already has over the formation of RTOs.

  • Mergers and acquisitions. The flurry of utility merger activity fueled by state restructuring is encouraging utilities to evaluate the feasibility of joining RTOs or similar entities. Participation in an RTO can help address market power concerns and can prove to be an important bargaining chip during negotiations with regulators and stakeholders.

  • Multi-regional consolidation. A number of operational ISOs have identified the potential benefits of coordinating certain market activities. For instance, ISO-NE, NYISO, and PJM recently released a joint Memorandum of Understanding to coordinate efforts to improve market conditions. Similarly, the Western States Coordinating Council (WSCC) supports the development of a transitional plan that would consider the formation of a new RTO, called the Western Interconnection Organization (WIO).

  • Market-Based Pricing. A trend toward marginal pricing is now evident among existing ISOs, such as CAL ISO, NY ISO, and PJM. Although ERCOT, MISO, and ISO-NE have historically relied on non-price mechanisms for congestion management, each is now in the process of developing a price-based congestion management approach.

  • Technology. Driven by competition, advancements in generation technology and demand management will include the use of forward, physical Internet-based markets that integrate markets for electricity, transmission, and ancillary services based on real-time power flows. Economically efficient e-commerce trading is likely in the future.

  • Evolution to Transcos. The flexibility of FERC Order 2000, in not specifically mandating the formation of ISOs, leaves the door open for Transcos to evolve as RTOs. FERC’s apparent willingness to entertain Transco proposals as long as some accompanying mechanism ensures independence in governance and open access to market participants, may result in a trend toward Transco development. n

    This article is based upon Environmental Futures Inc.’s recently completed 2000 U.S. Regional Transmission Organization Study. This benchmark study focuses on each developing RTO initiative in the United States. For more information, please contact Jon Abe at 617-443-1308 or jon_abe@efinc.com, or visit www.efinc.com.

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    The Clarion Energy Content Team is made up of editors from various publications, including POWERGRID International, Power Engineering, Renewable Energy World, Hydro Review, Smart Energy International, and Power Engineering International. Contact the content lead for this publication at Jennifer.Runyon@ClarionEvents.com.

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