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• FERC Laws and Orders

Regulation

The electricity industry is last of the big industries to face "deregulation." Deregulation is a misnomer because under deregulation there will continue as much regulation as there has ever been. Restructuring the industry may be a more accurate description of the process.

Restructuring the industry has not been an easy or smooth process in that the industry is large and complex. Congress set in motion restructuring of the industry through passage of The Energy Policy Act of 1992.

Utility regulation

All utilities are regulated one way or another.

• State PUCs or PSCs have jurisdiction over intrastate electricity trade for IOUs.
• Municipal utilities are self-regulated by their BODs, serving mainly as distribution-only utilities.
• RUS and the elected BODs regulate consumer-owned co-ops.

FERC has jurisdiction over interstate commerce (wholesale sales and transmission) for IOUs, power markers, and ISOs. FERC approves rates for sale of wholesale electricity and reviews rates set by the federal PMAs.

Short history of restructuring

The Energy Policy Act of 1992 mandated that FERC open up the national grid on a non-discriminatory, non-preferential basis for wholesale delivery of electrical power.

On April 24, 1996, FERC issued Orders 888 and 889 that encouraged wholesale competition. The primary objective of these orders was the elimination of monopoly power over the transmission of electricity. To achieve this objective, FERC required all public utilities that own, control, or operate facilities used for transmitting electric energy in interstate commerce to:

• file open-access nondiscriminatory transmission tariffs containing minimum terms and conditions,
• take transmission service (including ancillary services) for their own new wholesale sales and purchases of electricity under open-access tariffs,
• develop and maintain a same-time information system that will give existing and potential users the same access to transmission information that the public utilities enjoy, and
• separate the transmission from generating and marketing functions and communications.

FERC issued Order 2000 asking all transmission-owning utilities, including non-public utilities, to place their transmission facilities under the control of an appropriate regional transmission organization (RTO).

FERC Order 2000

According to FERC Order 2000, RTOs must embrace four core characteristics and eight key functions. Functions include:

• tariff administration and design
• congestion management
• parallel path flows
• ancillary services
• OASIS and capability calculations
• market monitoring
• planning and expansion
• interregional coordination

The four characteristics include: independence, scope/regional configuration, operational authority, and short-term reliability.

In theory, RTOs are designed to benefit consumers and industry

RTOs are supposed to promote a more robust market while maximizing the efficiency of the electric transmission system for a more reliable, economical electric transmission system for both wholesale and retail consumers.

As the industry undergoes deregulation, independent RTOs are to ensure equal treatment to all industry participants using the transmission lines and increase the reliability of the system by controlling of the national wholesale bulk electric system rather than having entities with varying vested interests control the lines.

The RTO approach is that one organization oversees and coordinates the processes integral to the efficient planning and operation of the electric transmission system in a region. With an independent organization in this role, industry participants are supposed to be assured that a consistent set of standards and protocols will be applied in the region to level the playing field and create greater competition in the wholesale bulk electric market.

Under a restructured electric industry, who builds the transmission? Who pays for it? Who gets the rights to use it in an open-access environment?

Most RTOs have selected license plate pricing for transmission usage. Experience has demonstrated that license plate pricing will not encourage new transmission investments. License plate pricing charges for only the local utility transmission facilities (called a zone) even though the entire grid is used.

What will the new rules be?

FERC issued its standard market design (SMD) with new market concepts that has industry concerned about the impacts and confused on FERC's direction. Federal legislation that might mandate other changes with transmission operations has the industry in a "wait and see" mode.

Can states form regional organizations to do the necessary transmission planning and do they have the necessary authority or should that be done by the RTOs?

In the past, participants wanting to deliver power across multiple pre-defined zones would have to pay separate rates for each area crossed, resulting in the stacking (or "pancaking") of rates.

It is also thought that RTOs would also be in a position to improve the efficiency in use of the electric transmission grid. Because the RTO has access to information from a large, regional perspective, the RTO can take actions that result in the most efficient use of the system while preserving reliability of the system.

This regional perspective also is beneficial when planning enhancements to the transmission system. By looking at the entire RTO region, the RTO should be able to determine the most economical additions to the transmission system that will, at the same time, provide the greatest system reliability.

A national electric grid advances our energy policy by:

• Modernizing and expanding our aging energy infrastructure
• Diversifying energy supplies
• Strengthening America's energy security

States like North Dakota, Montana and Wyoming have abundant coal and wind energy resources, but are hindered from future energy development because the transmission infrastructure is inadequate to export the power to populated regions that need the energy.

Policy points - The nation needs

• A transmission grid similar to our interstate highway system would provide transportation for electricity from multiple resources and create a competitive wholesale electric marketplace.
• A transmission cost recovery policy that recognizes that all electric energy uses the entire transmission grid to get electricity from all supply resources to all loads.
• A policy that assures investors of minimal risk to their money.
• A policy that encourages increased investment in broad regional transmission infrastructure.
• Procedures that allow all consumers to participate equally in achieving access to competitive wholesale power supply resources.