Commentary: Third time the charm for unbiased open access?

Power, Jul 2007

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.

face= Bold; Earlier effortsface=-Bold;

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.

face= Bold; Try againface=-Bold;

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.

face= Bold; The new approachface=-Bold;

In February 2007, FERC issued Order 890, its third attempt to remedy discrimination in transmission service. The order makes clear what FERC learned from the SMD fiasco--that the potential for reform is limited by political realities. Rather than propose a whole new transmission framework, Order 890 makes targeted revisions to existing open access rules and thus does not ruffle too many feathers. It purposely avoids "third rail" issues such as the native load priority, state jurisdiction over bundled retail transmission, corporate divestiture, standardized markets, and whether FERC's expanded statutory authority gives it license to mandate open access for public power and other entities not traditionally subject to federal regulation.

The Order 890 revisions fall into three broad categories. The first category includes measures to increase "transparency," which in theory would expose transmission providers' discriminatory practices. Transmission-owning utilities now must:

Develop more-consistent methods of calculating a system's available capacity.

Make their transmission planning process more transparent.

Publicly post more information about system capacity, transmission requests and denials, network resource designations, and business practices.

In the second category of revisions, Order 890 steps up enforcement of existing provisions by, for example, adding financial penalties for transmission providers who fail to complete requested transmission studies in the time required.

The third category of revisions is intended to increase the fairness and efficiency of existing open access provisions. They:

Revise the oft-contested rollover provisions for transmission service agreements.

Compel the use of a cost-based energy and generator imbalance compensation method, based on degree of deviation, that provides special consideration for intermittent generation (such as wind power).

Require transmission owners to offer a new "conditional firm" category of service to a supplier capable of delivering power to a customer for most, but not all, hours in the requested time period.

Allow a transmission customer to resell reserved transmission capacity exempt from cost caps.

Clarify and revise certain network resource and reservation priority rules.

There is no doubt that FERC's new Order 890, if fully implemented, will make it more difficult to engage in discriminatory transmission practices. Whether it is sufficient to satisfy the ultimate goal of Order 888, or is merely another incremental step in that direction, remains to be seen.

--face= Bold; Brian Gishface=-Bold; is of counsel to the Energy Practice Group of the national law firm Davis Wright Tremaine LLP in Washington, D.C. He has been practicing FERC law for over 25 years and has worked in FERC's Office of General Counsel. He can be reached at briangish@dwt.com