July 15, 2007

Third time the charm for unbiased open access?

By George W. Sharp, EUCG Inc., Fossil Productivity Committee

 

The Federal Energy Regulatory Commission (FERC) recently issued major rules that address for the third time "discrimination" issues remaining after FERC's 1996 landmark Order 888, which ushered in mandatory open access to transmission. The order was intended to give all power sellers equal access to power lines and thus increase wholesale price competition.

Earlier efforts

Three years after Order 888, FERC found that transmission-owning utilities (who also sell power) were still finding ways to deny competitors equal access to their lines. To address this conflict of interest, in late 1999, FERC issued Order 2000. The order sought to encourage the creation of regional transmission organizations (RTOs) with no incentive to discriminate because RTOs would have no financial stake in power sales.

Order 2000 did not force transmission-owning utilities to join an RTO, only to consider doing so. Therefore, the order was more effective at highlighting deficiencies in the existing bulk-power grid than at getting RTOs established nationwide. Although RTOs took hold in the Northeast, upper Mid-Atlantic, Midwest, and South Central regions, efforts to create them elsewhere were half-hearted or faltered. RTO formation was met with resistance by some vertically integrated utilities and reluctance on the part of some state utility commissions.

Try again

FERC's second attempt to remedy discriminatory practices was its ambitious Standard Market Design (SMD) initiative of 2002–2003. SMD would have required that all transmission facilities be operated by an independent, unbiased transmission provider. It also mandated standardized wholesale power markets that would provide transparent price signals and improve congestion management.

Unfortunately, SMD proved to be as politically unpalatable as Order 2000. The proposal died of multiple wounds inflicted by vertically integrated utilities seeking to maintain the status quo, state governments fearing federal encroachment on their jurisdiction, and its own complexity.