Message-ID: <28366195.1075851975846.JavaMail.evans@thyme> Date: Thu, 19 Jul 2001 03:45:00 -0700 (PDT) From: janet.l.mondello@bakernet.com Subject: E-Notes: U.S. Energy Regulators Restructure The Transmission Gri d, Call for Four Regional Transmission Organizations Mime-Version: 1.0 Content-Type: text/plain; charset=us-ascii Content-Transfer-Encoding: 7bit X-From: Janet.L.Mondello@BAKERNET.com X-To: X-cc: X-bcc: X-Folder: \Richard_Shapiro_Nov2001\Notes Folders\All documents X-Origin: SHAPIRO-R X-FileName: rshapiro.nsf <<...OLE_Obj...>> E-Notes provides regular briefings on new developments in global energy and public utility law. JULY 19, 2001 U.S. Energy Regulators Restructure The Transmission Grid, Call for Four Regional Transmission Organizations Jonathan W. Gottlieb, Esq. Roger M. Gibian, Esq. On July 12th, the U.S. Federal Energy Regulatory Commission issued a series of orders that fundamentally restructures the transmission system in the United States. In its orders FERC called for the development of one Regional Transmission Organization for each of the Northeast, Midwest, Southeast, and Western regions of the country. An immediate result of these actions is that FERC directed: (1) the New York ISO, NEPOOL, PJM, and PJM-West into mediation proceedings for the formation of a single RTO covering the Northeast United States from Maryland and West Virginia north to Maine; and (2) the Southern Companies, Southwest Power Pool, Entergy, and GridSouth into mediation proceedings for the formation of a single RTO in the Southeast. The Commission allowed Southwest Power Pool the option of instead pursuing involvement in an RTO in the Midwest, and encouraged, but did not require, the entities comprising the GridFlorida RTO to engage in the Southeast RTO mediation proceedings. These orders reflect the ascendancy of a coalition of Commissioners Massey, Wood, and Brownell, and represent a fundamental shift in FERC's RTO formation policy. FERC has sent a clear signal that it is shifting away from its pattern of supporting maintenance of the status quo and towards a more actively engaged posture to shape the Nation's energy policy. These orders reflect the apparent frustration being felt by many at FERC and the fact that the agency has clearly run out of patience with the slow pace of the voluntary RTO formation process. In a surprising twist, in its orders the Commission openly expresses its disappointment with the lack of progress being made in various existing RTO proceedings. Given the dismissive tone and far-reaching scope of these orders, it seems safe to assume that FERC will not hesitate to terminate collaborative processes it perceives to be unproductive, and will take the extraordinary step of directing parties into time-limited settlement discussions with the threat of Commission action if the parties do not work their problems out on their own. By forcefully asserting its control over the process and altering the configuration of RTOs at this late stage in their development, the Commission is showing that it will aggressively pursue its goal of having large-scale region-wide RTOs operational by its December 15, 2001 target date. With the recent addition over the past several months of new Commissioners Wood and Brownell, FERC now possesses a reinvigorated political will to take more aggressive action to ensure the implementation of its regulatory policy agenda. Commissioner Wood, a close friend of President Bush and widely expected to replace Chairman Hebert following the August recess, has been pursuing an active agenda since arriving at the Commission earlier this year. Although recently rebuffed in his efforts to establish numerous new rulemaking dockets (due to lack of available staff support), Commissioner Wood's separate concurring statements that renewable resources are an increasingly important part of the nation's energy mix, that congestion management must be addressed in a standard format nationally, and that the $5,000 annual membership fee for voting members of PJM prevents reasonable inclusion of individual residential and small customers, indicate that a Commission led by a Chairman Wood would be receptive to creative and innovative proposals as well as aggressive in its pursuit of the organizational structure it believes best for competitive markets. In its orders on July 12th, the Commission indicated its receptiveness towards adopting standardized generation interconnection agreements and standardized procedures for the conversion of interconnection agreements, while Commissioner Wood expressed additional support for the adoption of a national standardized congestion management scheme and the development of uniform reliability and market interface practices. Adopting standardized procedures in these areas will produce two significant benefits: (1) it will promote generation investment and market stability; and (2) it would promote the efficient use of FERC staff resources, as staff would no longer be required to process the significant number of filings and pleadings it presently receives in connection with these issues. This latter point is especially important, given that Commissioner Wood has been frustrated in his attempts to initiate new rulemaking procedures and promote a more active agenda due to a lack of available staff resources. Given Commissioner Massey's explicit mention of the "crushing workload" that staff has been under and Commissioner Wood's incentive for freeing up staff resources, FERC should be taking significant steps in the future towards the standardization of a wide variety of procedures. Establishing four region-wide RTOs will increase the availability of power supplies, reduce problems in sending electricity between control areas, and create a more liquid national electricity market. Placing large portions of the Nation's transmission grid under the control of a single operator will help eliminate transmission constraints, increase reliability, and lower wholesale prices. Given the Commission's disposition towards establishing these large-scale RTOs, it appears inevitable that the Commission will direct parties in the Midwest and Western regions into mediation proceedings similar to those convened for the Northeast and Southeast. Orders initiating those proceedings will probably be issued after the Southeast and Northeast proceedings have concluded. Jonathan W. Gottlieb and Roger M. Gibian are attorneys in the Washington, DC office of Baker & McKenzie where they specialize in representing clients in the competitive power markets in the United States and globally. Mr. Gottlieb can be reached at 202.452.7084 or mailto:jonathan.w.gottlieb@bakernet.com; Mr. Gibian can be reached at 202.452.7002 or mailto:roger.m.gibian@bakernet.com. ____________________________________________________________________________ E-Notes is a publication of Baker & McKenzie. It does not constitute legal advice or a legal opinion on any specific facts or circumstances. The contents are intended as general information only. You are urged to consult your attorney concerning your situation and specific legal questions you may have. For further information on the subjects discussed in E-Notes, contact Michael J. Zimmer, mailto:michael.j.zimmer@bakernet.com or Jonathan W. Gottlieb, mailto:jonathan.w.gottlieb@bakernet.com. For more information about BAKER & McKENZIE and our global energy and utility practice, click on our electronic business card: <<...OLE_Obj...>> or visit our website at .