Subject: ALLIANCE FERC BEAT: GENERATORS/POWER MARKETERS FERC Post-Meeting Memo for October 24, 2001
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Date: Fri, 26 Oct 2001 09:14:52 -0700 (PDT)

GENERATORS/POWER MARKETERS FERC Post-Meeting Memo for October 24,  2001 
Highlights 
At Wednesday's  Commission meeting, generators scored a major victory with the Commission's  order setting a new interim generator interconnection policy whereby  transmission owners must pay interest to generators for interconnection costs  for system upgrades needed to interconnect. Commissioner Massey, although  supporting the order only on an interim basis, said that "if the generator is  going to used as a bank, it should be paid interest." Chairman Wood continues to  be "uncomfortable with generators being the bank." 
The remainder of the  meeting focused on establishing processes for continued development of RTOs.  Within that framework, the Commissioners discussed the status of the Southeast,  Northeast and Midwest RTOs. Chairman Wood, although joking of the less than  pleasant comments made by the Chairman of the Maryland Public Service  Commission, Catherine Riley, and many other state commissioners at last week's  RTO Conference, acknowledged that the FERC took heed to the state commissions'  concerns and will involve state commissions in the decision-making process and  formation of the RTOs going forward. To back that up, Commissioner Brownell  proposed the creation of a "regional panel" consisting of state commissions and  FERC staff. This new panel will offer a forum for all regulatory bodies to  provide input in the RTO process. Commissioner Brownell's proposal was supported  by all three commissioners, although Commissioner Massey expressed a little  reservation. 
It seems that the Commissioner is taking steps in that  direction by convening the Western Infrastructure Adequacy Conference to be held  during the Western Governor's Association Meeting in Seattle, WA on November 2.  This conference, too, was aimed at strengthening relationships with the states  and involving them in the decision-making process. 
In addition, the  Commission extends bid caps for the ISO NE and NY ISO markets, addresses the  issue of costs responsibility for interconnections and allows virtual bidding in  the NY ISO real-time market. 
These and other proceedings are  reported below. If you would like copies of any orders, please contact us.  
Commission Discussion  
FERC Orders Transmission Providers to Pay Interest to  Generators for System Upgrades 
It is clear that the Commission is  taking a serious look at the current interconnection policies and is not afraid  to revisit earlier FERC policy to make sure that they get it right. In a  dramatic move, FERC changed policy course and ordered on rehearing that Indiana  Michigan Power Company pay DPL Energy, Inc. interest on the transmission credits  it will receive from Indiana to repay it for interconnection costs associated  with system upgrades of facilities. 
Chairman Wood believes that the  transmission owner "should both construct and take responsibility for getting  transmission built". Wood went on to say that "generators should do what they do  best" ...and "not be the bank". 
Commissioner Massey tried to stress that  his support of this order is only on an interim basis: " My long-term view has  not yet been formulated... I have an open mind about how to price  interconnection costs." However, Massey supported this order because he believed  that " if a generator is going to be used as a bank, it should be paid  interest." 
Commissioner Breathitt, on the other hand, was the lone  dissenter on this order. Commissioner Breathitt called this item for discussion  in conjunction with six other interconnection-related proceedings being  considered on this agenda (E-7;E-10;E-12;E-17; and E-17). This policy shift is  to be applied prospectively. In support of her dissent, Breathitt said that she  "was not convinced that this order adequately counters the July order which  denied rehearing on this very issue. Commissioner Breathitt also stated that she  believed it premature to address interconnection issues and cost responsibility  in light of the Commission's earlier announcement that it will issue an ANOPR on  generator interconnection procedures and costs allocation issues.  
American Electric Power ER01-2163-001  
FERC To Establish Regional Panels to Facilitate RTO  Formation 
At the request of Commissioner Brownell, FERC will  establish regional panels to help facilitate information exchange and  collaboration between FERC and the state commissions. This decision is a direct  result of the Commission responding to comments voiced by many state commissions  at last week's RTO "Boot Camp". It was clear that the state commissions have  felt like they have been left out of the RTO debate and process. So to remedy  that going forward, FERC has recommended the creation of this regional panel  structure. The goal of this regional panel is to strengthen relationships with  the states, help FERC with problem-solving, and bring more efficiency to this  RTO process. The Commissioners have recommended that this newly created  structure within FERC have a dedicated staff and serve as sort of a "one-stop  shop" for states to retrieve and exchange information with FERC.  
Chairman Wood expressed his support for this initiative and thanked  Commissioner Brownell for her vision. Wood also spelled out what he sees as the  duties of this regional panel: (1) setting up RTOs; (2) addressing transmission  cost and infrastructure issues; (3) devise demand-side response mechanisms; (4)  help develop market monitoring and market mitigation programs; and (5) consider  best use of "distributed generation". Chairman Wood said that he would like this  panel to look at the use of "distributed generation" on his behalf. Although  conceding that distributed generation "looks more like a retail issue", Chairman  Wood went on to say that he and the Commissioners would do everything it could  to help assist the states in that process. 
Even though Commissioner  Massey supported the order, he did, however, voice his frustration over the  continuous use of conferences and other forums aimed at developing regional  transmission organizations that have yet to yield the desired result: "It is my  belief that we have had a lot of process.. if we need more we ought to structure  it so to get to the 'end game'." 
ALJ's Discuss RTO Mediation  Reports and Recommendations 
Southeast RTO Mediation  
The Commission heard presentations by staff and both the  Administrative Law Judge presiding over the Southeast and Northeast RTO  meditations. FERC staff signaled the audience that "governance is where this  discussion will focus." Identifying the unique nature of this mediation process,  Judge Bobbi Mc Cartney viewed this as a "new approach to mediation" in which she  now terms as a "market-based mediation" approach. In Judge McCartney's summary  of her Southeast mediation report, she recommended that out of the two  governance models that rose from the Southeast RTO Meditations, the  Collaborative Governance Model "represented the most fully-developed model."  Judge McCartney went so far as to highlight several components of the  GridFlorida RTO model: "It [GridFlorida] has a nicely prepared for-profit  Transco model." 
Interestingly, FERC staff, in its presentation, stated  that both models satisfied compliance with Order 2000. However, upon questioning  by Commissioner Massey, staff conceded that the alternate "Independent System  Administrator (ISA)" model may NOT fully comply with Order 2000 and may need  additional work to bring it in compliance. Apparently wearing two hats, Judge  McCartney's mediation advisor, Chairman Herb Tate, expressed his preference for  the ISA model. He stated that public power entities and states may be more  "comfortable" with this model because of its similarity to the Independent  System Operator (ISO) model currently in place in the Northeast. 
Both  Judge McCartney and Chairman Tate called on the Commission to take this report  and build from it. Judge McCartney made it very clear that the findings were  limited to the narrow scope she was asked to address. Judge McCartney only  looked at the filings made in the Southeast RTO dockets and made no comparisons  to other region's RTO proposals. Because of that limitation, Judge McCartney and  Chairman Tate asked the Commission to do what they did not have an opportunity  to. 
Ultimately, the Commissioners were very impressed by the results of  the Southeast RTO meditations, but recognized that much more needs to be  explored and resolved:(1) who does transmission planning; (2) how do you  preserve the low-cost energy while restructuring the wholesale market?; and (3)  should sub-regional RTOs still be allowed to continue developing knowing that  they will be superseded by the creation of a supra regional RTO?  (EX02-2; RT01-100 GridSouth; RT01-34 Southwest Power Pool; RT01-75  Entergy Services; RT01-77 Southern Company Services)  
Northeast RTO  Mediation 
Discussions on the Northeast RTO Meditations went  very much like the Southeast. Judge Peter Young summarized his findings from the  Northeast mediation with assistance by his mediation advisor via telephone, Joe  Garcia. The Northeast mediation did not concentrate on substantive issues and  structures, instead it concentrated on process and timelines. The meditations  yielded three options stakeholders offered for consideration: Option I-M; Option  2-M; and Option 3-M. Judge Young expressed his favor with Option I-M. However,  again, the advisors and Judges were split on the appropriate model to use going  forward. Joe Garcia recommended to the FERC the use of the 3-M Option, since it  garnered the most "broad based support" from industry mediation participants.  
Without committing to one model or the other, Chairman Wood did,  however, state that "Option 2 has some attractiveness" because of the of the  shortened time frame for implementation. (EX02-1-000; RT01-99 PJM; RT01-98  PJM-West; New York ISO RT01-95) 
Midwest RTO Developments  
The Midwest RTO discussions took a different approach beginning  with a staff presentation that highlighted the status of both the Alliance RTO  and the Midwest RTOs. From the FERC staff presentation, it seemed as if the  staff portrayed the Midwest ISO as the more progressive of the two RTOs before  them. Of particular note, Commissioner Breathitt pointed out that Southwest  Power Pool had announced its plan to merge with the Midwest ISO, which could  address Commission's concern that its scope was too small. Looking to gain more  intelligence on the announced proposed merger of MISO and SPP, the Commissioners  asked Jim Torgenson of MISO to join the panel and answer staff questions. The  Commissioners were very concerned with the possibility of seams between the two  areas,( i.e. Midwest ISO and SPP). Mr. Torgenson quieted those concerns by  telling the Commission that there will be "no seams"... "they will function as  one." Under the new proposed structure, Jim Torgeson will become CEO of the  newly created and named structure and Nick Brown will assume the position of COO  for the new structure. In addition, the Midwest ISO/SPP RTO will seat an  entirely new independent 11 person board. 
Representatives from the  Alliance RTO were not given the same opportunity to update the Commissioners on  their RTO progress. The Commissioners only had the staff presentation  summarizing what the Alliance had filed in its most recent status report  afforded to them. In the presentation, staff noted that the Alliance RTO would  not be operational by the December 15 RTO start-up date, but that the Midwest  ISO intended to be. 
Much of the Midwest discussion centered around the  viability of "stand-alone" transcos and for-profit transcos within the RTO  structure. Commissioner Breathitt stated that she "hope(s) to see a stand-alone  transmission company." she went on to say that with regards to Transcos, "maybe  it is a time that has not yet come." With so much uncertainty surrounding the  Midwest and other regions, Commissioner Brownell instructed the Commission no to  allow these "models to be exposed in the market while we [FERC] tincker."  Commissioner Massey made a statement along the same lines asking for the  Commission to consider "what functions do investors need to invest in RTOs" that  could make the investments more appealing. It is conceivable that this  uncertainty in the market surrounding the creation of RTOs, both for-profit and  not-for-profit could deter much needed investment in these models.  (EX02-3; RT01-87 Midwest ISO/Alliance; EL01-80 National Grid USA) -  
The message the Commissioners got across at Wednesday's  meeting is that it will attempt to give people certainty by proceeding in a  manner that will involve the necessary parties to bring RTOs into fruition. (1)  perform an updated cost-benefit analysis of creating RTOs; (20 issue a NOPR on  RTOs that spell out what the Commission is looking for compliance; (3) issue an  interconnection ANOPR to resolve a huge outstanding issue that could impact  functionality of RTOs; (4) create regional councils to facilitate collaboration  between states and FERC; and (5) issue a NOPR on Open Access Tariffs to guide  the industry in fashioning tariffs. 
Discussion of Western  Infrastructure Adequacy Conference AD01-2 
The staff started off the  presentation by stating that it views this conference as a "fact-finding  mission". Staff proceeded to lay out three questions the FERC will attempt to  answer through this conference: (1) Is current infrastructure adequate?; (2)  What are the infrastructure needs in the West?; and (3) What factors are  inhibiting adequate investment in infrastructure? In addition to those  questions, staff is looking to address offsets of those larger contextual  questions: (a) what is the outlook for population and growth of demand in the  West; (b) Why isn't needed infrastructure being built? what are the barriers?  (c) What can FERC and the states do to increase investment in the West? Chairman  Wood ended the discussion by stating that "what is good for the West is good for  the rest of the country." So, we can probably expect FERC to move forward with a  series of regional discussions similar to this conference in the West.  
Individual Contested Proceedings  
Bid Caps/ Market Mitigation  
New York ISO ER01-3001-000  - The Commission granted the NY ISO an extension of its  $1,000 bid cap until which time a Northeast RTO becomes operational. The  Commission also directed the NY ISO to file semiannual reports on the progress  of its efforts to implement programs that could minimize occurrence of extreme  prices, e.g. demand-side management programs. In addition, as condition for  approval of an extension for the use of the NY ISO's Temporary Extraordinary  Procedures (TEP), the NY ISO must file within 30 days a more defined set of  procedures for triggering TEP in the market. 
ISO New England  ER01-3086-000 - The Commission granted the ISO-NE an extension of  its $1,000 bid cap until such time as a Northeast RTO becomes operational.  
Morgan Stanley Capital Group v.  NY  ISO EL00-90-000; ER01-3009;ER01-3153-000 - The Commission accepted  the proposal to allow virtual bidding, (i.e. bidding of non-physical generation  and load) in the NY ISO's real-time market. The Commission also accepted the  NYISO's revised Market Mitigation Measures aimed at addressing potential gaming  or market power that may result from the introduction of virtual bidding.  
Generator  Interconnection 
New York  Independent System Operator, Inc.  ER01-2967-000   The Commission addressed the issue of cost responsibility for  interconnection by ruling that generators may only be assigned costs of System  Upgrade Facilities to the extent that these costs are not already in the  "Baseline Assessment". In addition, siding with generator arguments, the  Commission also ordered the NY ISO to delete from its tariff its "Material  Impact Standards" without prejudice. 
Market  Complaints 
E-19 San Diego  Gas & Electric Co.  v.   Sellers of Energy EL00-95-034; EL00-98-038 - Order on the CA  ISO's compliance filing proposing a new generator outage and maintenance  coordination plan. Dynegy and other protesters allege that the CA ISO is  attempting to circumvent FERC and "seize control of the outage monitoring"  function that is currently FERC' s responsibility and role.  
Pacificorp Power Marketing ER01-2685-000 - The  Commission accepts Pacificorp Power Marketing's request to withdraw its filing  of a 10-year power Purchasing Agreement contract with the California Department  of Water Resources. Attempting to comply with a Commission order in the Southern  Case rescinding waiver and requiring that all long-tern power contacts be filed  with the Commission in place of submitting quarterly power marketing reports,  Pacificorp filed its long-term contract and later realized that the waiver was  still in effect at the time it made the power contract filing.  
Mirant et al.  v.  ISO New England, Inc.   EL01-93-001 - The Commission granted NSTAR's clarification  request and directed the ISO NE to file with the Commission all  mitigation contracts negotiated under Market Rule 17, effectively  eliminating the discretion the ISO NE attempted to exercise.  
E-30 Calpine Eastern Corp.,   Mirant et al.  v.  ISO New  England EL01-124-000 - The Commission agreed with Calpine and  granted its complaint ordering the ISO NE to include external energy contracts  in its calculation of the energy clearing price and Real-time Marginal Price  during non-OP4 conditions in the ISO's market. 
 
NOTE: FERC Issued ANOPR on Generator  Interconnection
Tonja Wicks 
Manager, Energy  Supply Policy 
Alliance of Energy Suppliers 
Edison Electric Institute  
Phone: (202) 508-5098 
Fax: (202) 508-5600 
Fax: (202) 508-5445  
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Tonja Wicks
Manager, Energy Supply Policy
Alliance of Energy  Suppliers
Edison Electric Institute
Phone: (202) 508-5098
Fax: (202)  508-5600
Fax: (202) 508-5445
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