April 1999

Electric Articles of Confederation

by Roger Feldman  --   Bingham, Dana and Gould, P.C.
(originally published by PMA OnLine Magazine: 04/99)

Transmission governance clearly is the great regulatory battleground now that, more and more states are falling into line with FERC’s open access leadership. It is also the fault line between the utilities which have fallen back to the regulated customer distribution service strategy; the major power supply independents (mostly, though not exclusively, utility affiliates); and the mega-customers who have been the drivers for integrated national transmission operations.

FERC, the prime arbiter in the absence of Congressional action, which started out in favor of various democratic ISO mechanism recently has been increasingly susceptible to call for private transcos. Now it is having to assimilate the demands of the big consumers (as well as some mega utilities) for big national RTOs. We trace its wavering path below from insular New England to the strife torn Midwest to the self-certain Hamiltonian halls of ELCON.

New England and the New Disestablishmentarianism

The traditional power barons there generally have fallen back to power transmission (linked, perhaps, to other customer services) as their strategy. Now they are stumbling. The battle for governance of the local ISO received a strong populist affirmation from FERC last month. It rejected the efforts of NEPOOL’s utility members to retain unassailable control of the formula that determined voting power (Docket No. ER 99-1142-000). An acceptable plan according to FERC would be one of sectorial governance such as that in PJM which provides for equal votes respectively for general owners, other suppliers, transmission owners, electric distributors, and end-use customers.

FERC did so, however, with a genteel restraint – asking NEPOOL to go back and try yet again to do it right. That approach provoked a spirited dissent from Commissioner Massey, who was concerned with the impact on important NEPOOL decisions of the permitted absence of immediate reform. It seems he was right. The traditional denizens of the commanding heights are now asserting that during the interim period while a new NEPOOL management "consensus" is being forged for FERC review, the old rules should continue to apply – even though major issues, such as congestion management, are slated to be resolved.

Midwest and the New Dissension

Meanwhile, FERC has been reaching out through consultation sessions with State Utility Commissioners (RM 99-2) regarding the creation of Regional Transmission Organizations (RTOs), in probable preparation for a rulemaking. The one clear theme of the sessions has been diversity: the regionality of the response, reflecting – in part – the conflicts of different utility strategies adapted under regional circumstances. While some ISOs, like PJM, are pleased with their compact size (though large volume of transactions), others – notably in the strifetorn Middle West – cry out for vigorous outside Federal action under Section 202(b) of the Federal Power Act to force all players under a big tent. Likening the proposed conditionally approved Midwest ISO to "Swiss cheese" because of its gaps, some State regulators, actually accused non-RTO utility participants of an intention to act discriminatorily. The conflict between the region’s major proposed "transco lite" (proposed by the Transmission Alliance, a group of major utilities) and the MISO was characterized as promoting regional fragmentation. MISO, incidentally, is the first ISO not proposed by a powerpool, and is not planned to be a control center. Commonwealth Edison has itself proposed to form a transco, which would be a member of the MISO.

Elcon and the New Nationalism

While FERC grapples with the "soft" issues of democracy, diversity and equity in New England and the Midwest, the folks who brought us open access – and have already benefited far more mightily than anyone else from it – have a simpler vision. Asserts Elcon: End the debate; and create 3 interconnection-wide RTOs covering large geographic regions. Several good arguments are presented: minimize loop flow; avoid utility manipulation of power flows for their own self interest; and provide overall control of transcos and ISOs. The leitmotif is one of dissatisfaction with ISOs as they are emerging. In Elcon’s view, they are small, bureaucratic, trader unfriendly. Even, suggests Elcon – perhaps thinking of NEPOOL - ISOs are guilty of acting like monopolists. Big customers and big traders favor big competitive markets.

So many "News..." FERC has been left to preside over an Electric Articles of Confederation. As suggested above, this seems like a conundrum so linked to core interests of power industry players, and so regionalized in its impacts, that nothing less than the arm wrestling of legislation will do to solve it. While the public eye has been on retail access and PUHCA repeal, it is in the creation of a New Transmission "Constitution" that the future of both the electric utility and the private merchant power industries lies.

ROGER FELDMAN, Co-Chair of Andrews Kurth LLP Climate Change and Carbon Markets Group has practiced law related to the finance of environmental and energy projects and companies for 40 years.  In particular, he has analyzed and executed a wide variety and substantial value of project financings.  He chairs the American Bar Association’s Committee on Carbon Trading and Finance, serves on the Board of the American Council for Renewable Energy, and has been a senior official in the Federal Energy Administration.  He is a graduate of Brown University, Yale Law School and Harvard Business School.