Wholesale Restructuring

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Wholesale Restructuring

• PURPA
• Market based wholesale rates
• Incentive rates
• Energy Policy Act of 1992
• Clarified power to order third party wheeling and
  to specify that service be offered
  nondiscriminatorily (comparability).
• Ad hoc orders FPL case
• PUHCA EWGs and ownership issues

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Toward Competition in Wholesale Markets Late
1990s-present
1980s and Early 1990s Wholesale generators began
to enter market with exemption from FPA
requirements, even without PURPA benefits.
Didnt need QF status to thrive. FERC nudged
transmission line owners to wheel power, and
Number of cross-service area wholesale
transactions increased. Transmission line owners
began filing transmission service tariffs. 1996
FERC Order 888 Mandating Open-Access
Transmission
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Order 888

• Purpose to ensure that all wholesale buyers
  and sellers of electric energy can obtain
  non-discriminatory transmission access . . .

• How? By creating a continuous open system and
  eliminating use of monopoly power to discriminate

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Order 888

• All transmission line owners must
• file open access non-discriminatory transmission
  tariffs
• provide transmission service for own wholesale
  sales on the same terms as provided in tariffs
• provide real time information system for
  purchasing transmission service
  non-discriminatorily (OASIS-Order 889)
• transmission line owners may recover stranded
  costs through tariffs

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Order 888 (contd)

• Encouraged formation of ISOs
• Sidestepped divestiture issue required utility
  owners of lines not to treat in-house purchasers
  of transmission services differently from outside
  buyers. But didnt require formation of separate
  business units.
• Contemplates continued need for FERC to monitor
  for generation dominance

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OASIS

• What is the purpose of this electronic system?
• Why does it merit its own separate FERC rule?
  (Order 889)
• OASIS standards of conduct for transmission
  service providers
• How does functional unbundling actually work in
  practice?

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Order 888/889 and Grid Management

• Some IOUs transmission services controlled by
  power pools
• IOUs required to authorize power pools to submit
  tariffs and to operate consistent with Order
• No more bundled wholesale sales must show
  separate product and service costs
• Growing wholesale markets increase need for
  technical grid management expertise (e.g. loop
  flows, safety, etc.)

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Order 888/889 and ISOs

• What is an ISO? What is a transco? Whats the
  difference?
• How, if at all do ISOs and transcos differ from
  the old power pools?
• What services do ISOs and transcos provide?
• How are ISOs run?

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Major Wholesale Electricity Trading Hubs
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Post-Order 888/889

• Drastic increase in wholesale sales
• Rise of power marketers
• Increases in new IPP generation
• Yet no corresponding increase in investment in
  transmission facilities

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• FERC Order 2000 (Jan. 2000)
• Require owners of transmission to explain plans
  to join/form RTO or explain why they are not
  doing so
• Does not mandate formation of RTO
• What is an RTO? How does it differ from an ISO?
  

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Order 2000

• What requirements does FERC impose on RTOs?
• Congestion management function by December 15,
  2002
• Parallel path flow coordination function by
  December 15, 2004
• Transmission planning and expansion function by
  December 15, 2004
• Other minimum functions will be implemented by
  startup

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Order 2000

• If you owned transmission facilities, how would
  you respond to this notice?
• Will the RTO idea increase in investment in new
  transmission capacity?

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Originally Proposed RTOs
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Status Report

• 10 years ago only a few companies were authorized
  (by FERC) to sell wholesale power at market-based
  rates
• Now about 860 companies are eligible to sell
  wholesale power at market-based rates
• 1998 Midwest price spikes
• 2000-01 California price spikes
• 2001 FERC pushing for 4 regional RTOs

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RTO/ISO Map January 2003
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• Increased competition in power sales should
  trigger fall in wholesale price.
• Transmission bottlenecks and resulting price
  spikes have not triggered sufficient investment
  in transmission.
• Why?
• What is the solution to this problem?
• Who should control transmission siting decisions,
  in your view?