NATIONAL ASSOCIATION OF STATE UTILITY CONSUMER ADVOCATES
R E S O L U T I O N

Regional Transmission Organizations (RTOs)

WHEREAS, the electric grid consists of interconnected electric generators, transmission facilities, and distribution facilities; and

WHEREAS, the operation of the transmission system affects and is affected by the operation of electrical generators; and

WHEREAS, the reliability of the nation’s electric supply depends on a high level of coordination among transmission facilities and generation facilities; and

WHEREAS, transmission facilities currently exhibit characteristics such as high fixed costs, difficulties in siting, and complex interactions affecting their integrity and available capacity which call for continued regulation for the foreseeable future; and

WHEREAS, transmission facilities currently exhibit characteristics of essential facilities in that non-discriminatory access to these facilities is necessary for effective competition to develop in wholesale and retail generation markets; and

WHEREAS, continued regulation of transmission facilities will be necessary in order to ensure non-discriminatory access to these facilities; and

WHEREAS, despite FERC Order 888, there still is reason for concern, as the FERC has noted in its RTO NOPR, that “continued discrimination in the provision of transmission services by vertically integrated utilities may also be impeding fully competitive electricity markets”; and

WHEREAS, the need for regional coordination, operation and control of the transmission system necessitates the need for an independent regional transmission organization (RTO) such as independent system operator (ISO) or other similarly independent competitively neutral regional transmission operation entity; and

WHEREAS, the development of Regional Transmission Organizations (RTOs) that has occurred to date has left large gaps between and within some RTOs where significant portions of the transmission grid facilities are not subject to RTO control and RTO transmission tariffs; and

WHEREAS, the current state of RTO development materially affects the development, existence and efficiency of competitive wholesale and retail markets for electric generation service; and

WHEREAS, the FERC has issued a Notice of Proposed Rulemaking (NOPR) for Regional Transmission Organizations that sets out a proposed framework for the RTO formation process, specifies certain proposed RTO characteristics and functions, and seeks further input from stakeholders regarding proposals that the FERC has made in its RTO NOPR; and

WHEREAS, Congress and a large number of states are actively considering or implementing legislation or regulatory changes which would affect the reliability, price, availability and competitive neutrality of the transmission grid by introducing competition in wholesale and retail generation markets; and

WHEREAS, many of these actions call for the creation of new institutional arrangements known generally as “Independent System Operators” and “Regional Transmission Organizations”; and

WHEREAS, there appear to exist numerous potential roles, characteristics, legal structures and other alternatives for Regional Transmission Organizations; and

WHEREAS, the NOPR also contains a question as to whether the FERC should employ financial incentives to induce utility participation in RTOs and in transferring transmission assets into a for-profit transmission company; and

WHEREAS, such incentives may have the perverse effect of permitting excessive utility earnings, higher prices for transmission service, and potentially inhibit the very competition the Commission hopes to achieve via the incentives; and

WHEREAS, achievement of nondiscriminatory transmission service would be hindered by permitting a for-profit Transco to serve as an RTO because such entities would not have an incentive to price transmission and plan transmission expansions in a manner that minimizes the net cost to consumers of transmission and generation due to the for-profit transco incentives to maximize transmission revenues and increase the value of transmission assets in rate base; and

WHEREAS, for-profit Transcos with a monopoly within large regional transmission systems have the clear potential to abuse their monopoly position and exercise market power; and

WHEREAS, the development of competitive energy markets requires transparency in prices, volumes, availability of generation and transmission capacity, markets and market rules;

THEREFORE, BE IT RESOLVED, that the National Association of State Utility Consumer Advocates (NASUCA) calls for all ISOs and RTOs, as well as any other entities charged with or assuming the operational control of a regional portion of the transmission grid, to possess the following minimum characteristics:

· it must be independent from market participants;

· it must serve a region of sufficient scope and configuration to perform effectively and support efficient and non-discriminatory power markets;

· it must have operational responsibility for all transmission facilities under its control; and

· it must have authority for maintaining the short-term reliability of the grid; and

BE IT FURTHER RESOLVED, that NASUCA calls for all RTOs and ISOs, as well as any other entities charged with or assuming the operational control of a regional portion of the transmission grid, to be required to perform the following functions:

· it must administer its own transmission tariff and use a transmission pricing system that promotes efficient use and expansions of transmission and generation facilities;

· it must ensure the development and operation of efficient and fair mechanisms to manage transmission congestion;

· it must develop and implement procedures to address parallel path flow issues both within its own region and with other regions;

· it must provide for a supplier of last resort for all ancillary services that cannot otherwise be supplied efficiently by market mechanisms;

· it must be the single OASIS–the Open Access Same-Time Information System–site administrator for all transmission facilities under its control and independently calculate total transmission capacity (TTC) and available transmission capacity (ATC);

· it must monitor markets for transmission services, ancillary services and bulk power to identify design flaws and market power and propose appropriate remedial actions; and

· it must be responsible for planning necessary transmission additions and upgrades in coordination with appropriate state authorities; and

BE IT FURTHER RESOLVED, that NASUCA calls for federal and state legislative or regulatory bodies as appropriate to:

· ensure appropriate regulatory oversight over all practices, tariffs, rules, requirements and procedures employed or enacted by the RTO or related entity;

· encourage and facilitate effective dispute resolution, while maintaining due process protections, including the right of appeal and of removal to higher legal authority, for all parties affected by the structure, governance or any practice, tariff, rule, requirement or procedure employed or required by the RTO or related entity. These forms of oversight and due process are necessary to assure the independence of the RTO or related entity;

· coordinate its regulatory oversight in a balanced way ;

· require RTOs or related entities to meet strict standards of economic operation and investment, minimization of prices to consumers, open and comparable access, competitive neutrality and public accountability;

· ensure that the costs of the RTO and other related entities must be just and reasonable, and shared by all users in an equitable, non-discriminatory and competitively neutral manner;

· facilitate the use of non-stakeholder governance boards. However, regardless of the model, provide a clearly defined and substantial role for state consumer advocates and other stakeholders in the governance and/or oversight regarding the RTO or related entity;

· provide that any powers or authority delegated to the RTO or related entity to prevent, identify and mitigate the exercise of market power must not preempt the application of antitrust law to illegal anti-competitive acts carried out by transmission owners or other market participants;

· require all RTOs and related entities to enforce compliance with reliability rules and protocols promulgated by the North American Electric Reliability Council or any duly authorized successor organization(s) by all members, customers, users, and owners of transmission; and

· ensure that Regional Transmission Organizations develop governing structures which provide for transparency in price, volumes, availability of generation and transmission capacity, markets and market rules; and

BE IT FURTHER RESOLVED, that NASUCA calls for the FERC and state commissions to determine that participation by investor owned electric utilities in an RTO or other independent and competitively neutral regional transmission operation organization is necessary. Such a requirement should include participation by public entities to the extent permitted by law. Where such public entities are not already participating in an RTO, the FERC should encourage them to join an RTO or should require such entities to work with the RTO(s) in their region to coordinate operational, tariff pricing, and planning functions; and

BE IT FURTHER RESOLVED, that the NASUCA urges the states and the FERC to reject the use of financial incentives to encourage investor-owned utilities to participate in RTOs or transcos because such incentives are likely to result in excess earnings, higher transmission rates, less competition, and many utilities are already required to join RTOs. Instead, states should use their powers under appropriate state law and the FERC should use its powers under sections 202(a), 203, 205, 206 and 210 of the Federal Power Act to require all investor-owned utilities to participate in an appropriate RTO; and

BE IT FURTHER RESOLVED, that NASUCA calls upon the FERC to work cooperatively with state commissions in the development of RTOs. FERC should defer where appropriate to state decisions consistent with this resolution; and

BE IT FURTHER RESOLVED, that the NASUCA calls upon the FERC to not consider RTO status to for-profit transcos unless the FERC determines that the proposed RTO has a truly independent governance and structure and meets strict standards of economic operation and investment, minimization of prices to consumers, open and comparable access, competitive neutrality and public accountability; and

BE IT FURTHER RESOLVED, that NASUCA authorizes its Executive Committee to develop specific positions and to take appropriate actions consistent with the terms of this resolution. The Executive Committee shall advise the membership of any proposed action prior to taking action if possible. In any event the Executive Committee shall notify the membership of any action pursuant to this resolution.

Approved by NASUCA:

August, 1999

Submitted by:

NASUCA Electricity Committee

Larry Frimerman, OH, Chairman

Angela E. Kennedy, D.C.
Anne E. Becker, IN
Barry Cohen, OH
Blossom Peretz, NJ
Brian Gallagher, DE
Frederick J. Schmidt, NV
George Dean, MA
Gregory Eisenstark, NJ
Irwin A. “Sonny” Popowsky, PA
James Volz, VT
Jim Hurt, GA
Kenneth Traum, NH
M. Shawn McMurray, AR
Matt Steuerwalt, WA
Nancy Vaughn Coombs, SC
Robert Kelter, IL
Ryan Kind, MO
Sandra Mattavous-Frye, D.C.
Scott Cauchois, CA
Steve Corneli, MN
Walker Hendrix, KS