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Content-Type: text/plain; charset=ANSI_X3.4-1968 Content-Transfer-Encoding: quoted-printable X-From: IssueAlert@SCIENTECH.COM X-To: ISSUEALERTHTML@LISTSERV.SCIENTECH.COM X-cc: X-bcc: X-Folder: \MHAEDIC (Non-Privileged)\Deleted Items X-Origin: Haedicke-M X-FileName: MHAEDIC (Non-Privileged).pst Today's IssueAlert Sponsors:=20 <http://www.energyventurefair.com/<; We are seeking 75 of the most promising energy-based technology and service= companies to present at Energy Venture Fair II, January 29 & 30, 2002, Hou= ston, TX-the follow-up to the explosively successful Energy Venture Fair I = held in Boston in June. If you are a Senior Executive from one of these com= panies, and are interested in having a platform to present your vision and = business plans before a national audience of investors, please contact Nann= ette Mooney at (818) 888-4445, Ext. 11, for more information, or via email = at nannettem@energyventurefair.com <mailto:nannettem@energyventurefair.com<= . 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Contact Infocast at (818) 888-4444 for= more information or go to www.nuclear-gen.com <http://www.nuclear-gen.com<= =20 <http://secure.scientech.com/rci/wsimages/scientech_logo_small.jpg< <http://secure.scientech.com/rci/wsimages/IssueAlert_Logo_188.jpg< October 1, 2001=20 FERC Chairman Wood Ups the Ante on RTO Formations, Outlines Long-Term Objectives for Industry=20 By Will McNamara Director, Electric Industry Analysis=20 <http://secure.scientech.com/rci/wsimages/will100border_copy.jpg< [News item from Reuters] The chairman of the Federal Energy Regulatory Comm= ission (FERC) said that all U.S. utilities must submit plans to the agency = by Dec. 15 for joining regional transmission organizations (RTOs) or the fi= rms and their affiliates would no longer be able to sell electricity in the= wholesale market at market-based rates. Merger approvals for transmission-= owning utilities that do not join an RTO might also be restricted. FERC Cha= irman Pat Wood, speaking at an agency meeting, said he believed there shoul= d be four RTOs nationwide: one each covering the Northeast, Southeast, Midw= est, and Western markets. "To me at this point, the four RTOs is a good pla= ce to land," Wood said. Each RTO would oversee a region's electric grid to = ensure all power suppliers had fair and equal access to transmission lines.= In addition to the aggressive timetable for RTO formation, Wood also outli= ned several priorities that are included in FERC's long-term agenda, includ= ing steps to reduce market manipulation and improve the industry's infrastr= ucture.=20 Analysis: In the transition from the former FERC under the leadership of Cu= rt H?bert to current chairman Pat Wood, it has often been projected that th= e new commission would become more interventionist and carry a "big stick" = to force utilities to comply with federal requirements. Clearly, this new d= eclaration from Chairman Wood, in his first substantial motion since becomi= ng FERC's leader last month, demonstrates just how commanding that stick ma= y become, along with the commission's unwavering commitment to the implemen= tation of its comprehensive RTO plans. Quite unlike his predecessor, who so= ught to reduce the extent to which FERC would regulate, through his develop= ing agenda Wood reportedly seeks to heighten the commission's role to the l= evel of the Securities and Exchange Commission and the Federal Trade Commis= sion. In other words, Wood wants FERC to create policy for the energy indus= try and then aggressively implement it, with RTOs being at the top of the l= ist.=20 The difference of FERC's new approach to RTOs (i.e., comparing Wood to H?be= rt) cannot be overstated. For the last several years, FERC has been regular= ly criticized for developing a policy toward RTOs that on paper called for = voluntary participation by the nation's transmission-owning utilities. Wood= is carving out a vastly different approach that ups the ante for RTO parti= cipation and affixes stiff penalties for those utilities that fail to compl= y. The new motion makes Wood's position very clear: utilities that own tran= smission assets must agree to turn those assets over to an RTO by Dec. 15 o= f this year-just over two months from now-or lose their authority to sell w= holesale electricity at market rates. In addition, Wood has said that FERC = should condition subsequent merger approvals on whether or not a transmissi= on-owning utility has complied with the commission's RTO order. Interesting= ly, Wood maintains that FERC's evolving position on RTOs still calls for "v= oluntary" participation among utilities. However, the new chairman clearly = states that if utilities don't join RTOs, they won't have access to the ben= efits of competitive markets.=20 It is important to note that Wood acknowledges that the actual transfer of = utility transmission assets may not occur for several years. The new motion= from Wood calls only for utilities' agreements and specific plans to trans= fer their transmission assets by Dec. 15. This proposal changes an earlier = FERC order that preceded Wood in which the commission called for RTOs to ac= tually become operational by Dec. 15, which the commission now apparently r= ealizes is not feasible.=20 This "big stick" that FERC is now hanging over utilities does offer some be= nefits as well, as Wood has been quick to reiterate. For instance, FERC has= already offered utilities higher regulated rates of return for transmissio= n assets under RTO control. In addition, by turning the transmission assets= over to an RTO, utilities will be removed from state regulatory oversight = of the assets. Of course, it is important to note that states still control= retail rates, which sets up many potential conflicts between federal and s= tate regulatory policies. There is also a separate measure that is coming t= ogether in Congress that would eliminate the tax consequences utilities fac= e when transferring their transmission assets to FERC-approved RTOs. Utilit= ies often cite the costs associated with transferring their transmission as= sets to an RTO when resisting compliance with FERC's order. If this federal= legislation is passed, transmission-owning utilities will have one less re= ason to resist the transfer of their transmission assets over to an indepen= dent entity.=20 It is important to note that Wood's new proposals related to RTO formation = are an adjunct to FERC's order from last July that mandated consolidation a= mong existing RTOs, with the stated goal of creating four large national en= tities (Northeast, Southeast, Midwest and West). The Electric Reliability C= ouncil of Texas (ERCOT), which already exists, is outside of FERC's jurisdi= ction. Four large RTOs is still the vision that FERC has in mind, and as no= ted Wood agrees that "four is a good place to land." However, the mandate o= n consolidation appears to be softening, at least in some regions. For inst= ance, in the Western region, presently three separate transmission entities= exist (the California ISO in California, RTO West among the Northwestern s= tates and Desert Star among the Southwestern states). In its July order, FE= RC had clearly stated that it wanted to see these three entities consolidat= e, a point that has caused a great deal of conflict with the California ISO= , which wants to remain independent. Now, Wood appears to be backing away f= rom forcing the consolidation issue in the West and has said that FERC's st= ance will be "not as aggressive" for integrating the existing RTOs in the W= est. Further, Wood now says that having a single Western RTO is not imperat= ive at this time.=20 Consolidation among the existing RTOs in the Northeast appears to be moving= forward. In fact, consolidation among the PJM Power Pool, the New York ISO= and the New England ISO could take place as soon as the end of next year. = This progress comes somewhat as a surprise, considering that the last repor= t out of this region was that the New York ISO and New England ISO resisted= the preference that had been shown for PJM's model. In the Midwest, two en= tities still exist (the Midwest ISO and the Alliance RTO), and Wood has sai= d that FERC is working toward a revised agreement between the two entities = that would encourage them to merge. Just recently, six investor- and public= -owned power companies in the Midwest applied to FERC to form a new company= to merge their electric transmission systems. Translink Transmission Co. w= ould be a for-profit entity. It is not presently known if or how Translink = may be required to conjoin with the Midwest ISO and the Alliance RTO.=20 As noted, Wood has also set out a long-term agenda for FERC, covering other= points beyond RTO formation. For instance, another critical issue for the = commission will be potential market manipulation that might take place by v= arious participants in deregulated environments. One of the ongoing debates= related to the failure of California's deregulated market was whether or n= ot out-of-state generators or state-affiliated entities such as the Califor= nia ISO and the Department of Water Resources intentionally manipulated the= state's market to impact power prices. Wood has indicated that FERC will s= oon release a formal policy for policing companies authorized to sell power= at market rates and utilities that use transmission services bundled into = state-regulated retail rates to thwart wholesale power competition. In addi= tion, Wood has said that FERC will establish new policies related to the in= formation that energy companies can share with their affiliates. This is a = direct reference to a pending case involving El Paso Corp., in which the co= mpany has been accused of sharing market-sensitive information with one of = its unregulated affiliates to gain a market edge in the natural-gas market = of California.=20 The other key focus area for Wood is upgrading the electricity infrastructu= re in the United States, which he says has not even remotely kept pace with= the tremendous growth in the economy over the last 15 years. Instead of bu= ilding new power lines, however, it appears that Wood supports the developm= ent of new technologies that would boost capacity on existing lines. Toward= that end, FERC and the Department of Energy will hold a forum on innovativ= e but unused energy technologies in January. Also along these lines are pla= ns to develop uniform strategies for hooking up existing and new power plan= ts to the transmission grid.=20 Moreover, as we head toward the end of 2001, we are fast approaching the fo= ur-year anniversary of the start of electric competition in the United Stat= es (California, the first state to implement direct access, opened its mark= et in March 1998). Four years later, the industry is still caught in somewh= at of a limbo between the old structure of monopoly control and the new str= ucture of full deregulation. Chairman Wood has assumed leadership over FERC= at a time when the commission has been heavily criticized for not doing en= ough to limit the amount of market abuse that has arisen as a result of der= egulation. At the same time, the extent to which the commission should prov= ide regulatory oversight in a deregulated marketplace has also come under q= uestion, even by the commissioners themselves. Thus, Chairman Wood's challe= nge will be to push electric competition forward while taking steps to redu= ce the potential for market manipulation. Clearly, RTOs continue to play an= integral role in these objectives and remain a top priority for FERC under= the new leadership of Pat Wood.=20 An archive list of previous IssueAlerts is available at www.scientech.com <http://secure.scientech.com/issuealert/<;=20 We encourage our readers to contact us with their comments. We look forward= to hearing from you. Nancy Spring <mailto:nspring@scientech.com< Reach thousands of utility analysts and decision makers every day. Your com= pany can schedule a sponsorship of IssueAlert by contacting Jane Pelz <mai= lto:jpelz@scientech.com<. Advertising opportunities are also available on o= ur Website.=20 SCIENTECH is pleased to provide you with your free, daily IssueAlert. Let u= s know if we can help you with in-depth analyses or any other SCIENTECH inf= ormation products. If you would like to refer a colleague to receive our fr= ee, daily IssueAlerts, please reply to this e-mail and include their full n= ame and e-mail address or register directly on our site.=20 If you no longer wish to receive this daily e-mail, and you are currently a= registered subscriber to IssueAlert via SCIENTECH's website, please visit = <http://secure.scientech.com/account/<; to unsubscribe. Otherwise, please se= nd an e-mail to to IssueAlert <mailto:IssueAlert@scientech.com<, with "Dele= te IA Subscription" in the subject line.=20 SCIENTECH's IssueAlerts(SM) are compiled based on the independent analysis = of SCIENTECH consultants. The opinions expressed in SCIENTECH's IssueAlerts= are not intended to predict financial performance of companies discussed, = or to be the basis for investment decisions of any kind. SCIENTECH's sole p= urpose in publishing its IssueAlerts is to offer an independent perspective= regarding the key events occurring in the energy industry, based on its lo= ng-standing reputation as an expert on energy issues.=20 Copyright 2001. SCIENTECH, Inc. All rights reserved. <http://infostore.consultrci.com/spacerdot.gif?IssueAlert=3D10/1/2001<;
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