[Federal Register Volume 66, Number 221 (Thursday, November 15, 2001)]
[Notices]
[Pages 57436-57438]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-28573]


-----------------------------------------------------------------------

DEPARTMENT OF ENERGY

Federal Energy Regulatory Commission

[Docket No. RM01-12-000]


Order Providing Guidance

Issued November 7, 2001.
AGENCY: Federal Energy Regulatory Commission.

ACTION: Order providing guidance.

-----------------------------------------------------------------------

SUMMARY: The Federal Energy Regulatory Commission (Commission) is 
providing guidance to the electric industry with respect to its goals 
for the next phase of regional transmission organization (RTO) 
implementation. The action is needed to clarify the Commission's goals 
for resolving issues relating to scope and governance of qualifying 
RTOs across the nation and for addressing business and process issues 
needed for organizations to accomplish the functions of Order No. 2000. 
It also states some of the Commission's specific plans for moving the 
RTO development process forward.

FOR FURTHER INFORMATION CONTACT: David D. Withnell, Office of General 
Counsel, Federal Energy Regulatory Commission, 888 First Street, NE., 
Washington, DC 20426, (202) 208-2063.

SUPPLEMENTARY INFORMATION:

Federal Energy Regulatory Commission

Before Commissioners: Pat Wood III, Chairman; William L. Massey, Linda 
Breathitt, and Nora Mead Brownell
Electricity Market Design and Structure

[Docket No. RM01-12-000]

Order Providing Guidance on Continued Processing of RTO Filings
Issued November 7, 2001.
    It is a fundamental objective of the Commission, in exercising its 
responsibilities under Part II of the Federal Power Act, to create a 
seamless, national, competitive marketplace for wholesale sales of 
electric energy and adequate generation and transmission infrastructure 
to support that marketplace. Such a marketplace will provide customers 
with more reliable and efficiently priced electric energy than 
wholesale markets with unnecessary variation in market rules and 
business practices. As a cornerstone of support for this national 
marketplace, we have endeavored for several years to create regional 
transmission organizations (RTOs) to capture the benefits and 
efficiencies of a competitive power marketplace for the nation's 
electricity customers. The FERC has before it numerous ongoing 
proceedings involving RTO proposals, and it has recently assessed the 
status of these proceedings and the ongoing

[[Page 57437]]

changes in the electricity marketplace. Taking into account the various 
stages of RTO efforts in the country, and the industry and state 
comments we have received in recent weeks (discussed below), in this 
order we state some of our goals and provide general guidance on how we 
intend to proceed on RTO filings and other related efforts. Our 
decision is in the public interest because it will provide direction 
for the electric industry and information to the public as we continue 
to move the RTO process forward.
    The Commission held a public conference on RTO issues (RTO Week) 
during the week of October 15 through 19, 2001. RTO Week consisted of 
10 sessions on various topics involving RTOs and the need for clear, 
appropriately standardized transmission tariff design and market rules. 
These sessions included participants from a wide range of affected 
interests and, significantly, included extensive comments from state 
commissioners. In addition, at our open meeting on October 24, 2001, we 
received status reports on RTO efforts in various regions of the 
country, including the Southeast, Northeast and Midwest. In association 
with the Western Governors' Committee on Regional Electricity Power 
Cooperation (CREPC) and the Commission's Western Regional 
Infrastructure Workshop in Seattle, Washington on November 1-2, 2001, 
the Commission also had the opportunity to hear updates on RTO efforts 
in the Western Interconnection. We now need to determine an 
expeditious, yet carefully deliberated, way to complete the development 
of RTOs, taking into account the need for further industry and state 
comments.
    The Commission intends to complete the RTO effort using two 
parallel tracks. The first track will be to resolve issues relating to 
geographic scope and governance of qualifying RTOs across the nation; 
these will be addressed in pending RT dockets following consultation 
with state commissioners, as discussed below.
    The second track for resolving RTO issues will be in the 
transmission tariff and market design rulemaking for public utilities, 
including RTOs, in Docket No. RM01-12-000. This will help address 
business and process issues needed for organizations to accomplish the 
functions of Order No. 2000.
    The FERC will take several immediate steps to move the RTO process 
along these tracks: (1) A broader definition of how certain RTO 
functions will be fulfilled; (2) better state/federal dialogue; (3) 
further cost/benefit studies; (4) identification of areas where 
standardization is called for; and (5) creation of a time line for RTO 
implementation.

Statement of Policy Goals

A. Fulfillment of RTO Functions

    The Commission must ensure that the RTO not only efficiently 
operates a transmission grid, but also undertakes certain activities to 
enable and sustain a vibrant and fair wholesale marketplace. For both 
aspects of an RTO to be successful, broad stakeholder support is 
important. In a number of proceedings, parties have proposed the 
development of a separate organization to perform some of the wholesale 
market activities, some of which were specified as RTO functions under 
Order No. 2000, and some of which have been raised as additional 
activities to enable vibrant and efficient wholesale markets. These 
wholesale market activities include: (1) Congestion management; (2) 
ancillary services; (3) administration of a balancing market; (4) OASIS 
administration, including total transmission capacity and available 
transmission capacity calculations; (5) security coordination; (6) 
market monitoring; (7) regional transmission facility planning; and (8) 
tariff administration and design.
    In Order No. 2000, the Commission contemplated that an ITC or an 
ISO may develop as a stand-alone RTO. In addition, however, the 
Commission will be seeking comments on other ways wholesale market 
activities might be fulfilled. For example, Midwest ISO, Alliance and 
Southwest Power Pool have already agreed to have a single market 
monitoring unit. In addition, the newly-formed Western Electric 
Coordinating Council handles both security coordination (reliability) 
and transmission planning duties. In order to phase in the progress 
toward comprehensive and geographically-large RTOs, these basic 
wholesale market activities could first be placed under the control or 
oversight of the broader organization. Other functions could be 
integrated into the broader organization later.
    In written submissions in various pending dockets and in the 
discussions during RTO week, particularly from state commissions and 
public power entities, parties seek assurance that critical wholesale 
market operations are being administered as objectively as possible. A 
number of reasonable models have been offered for this function both in 
the mediation dockets and in pending RTO dockets. The FERC will address 
these issues in the pending RT dockets.

B. State Participation; Other Outreach

    The invaluable participation of state commissioners in RTO Week 
confirms and reinforces our belief that we must work closely with state 
commissions to create a seamless national market. To that end, we plan 
to create and institute state-federal RTO panels as a forum for 
constructive dialogue between the Commission and state commissions with 
respect to RTO development.
    We have asked our staff to provide recommendations on panel 
structure and propose a timeline for the work of the panels to begin. 
We invite state commissioners to participate in this process, and we 
look forward to working with them to address the ongoing needs of 
regional markets.
    As the first matter of business, we intend to ask state 
commissioners to provide their advice to the Commission about the make-
up of regional markets. Specifically, the Commission will ask them for 
comments on the allocation of wholesale market activities, as set forth 
in section A above. For example, in the West, it is now apparent that 
the presence of three sub-regional organizations (bound by a workable 
seams agreement) under a larger umbrella organization has the potential 
to succeed.
    The Commission will institute additional outreach efforts with 
stakeholders and other interested persons on the status of, and 
obstacles to, RTO formation. For example, the Commission intends to 
meet with investor representatives to help us better understand the 
financing of independent transmission companies and of transmission 
construction.\1\ The Commission seeks to support development of a pro-
investment marketplace that is flexible enough, under Order No. 2000, 
to include both for-profit transcos and not-for-profit ISOs and any 
reasonable combinations of the two.
---------------------------------------------------------------------------

    \1\ These meetings will be publicly noticed, and we will invite 
subsequent comments on their content.
---------------------------------------------------------------------------

C. Cost/Benefit Studies

    On a parallel track to the organizational efforts listed above, the 
Commission will perform additional cost-benefit analyses on RTOs to 
guide our further efforts. These analyses are intended to demonstrate 
whether and, if so, how RTOs will yield customer savings and to provide 
a quantitative basis for the appropriate number of RTOs.

[[Page 57438]]

    The Commission has established a working group with state 
commission participation to work with FERC staff and the study 
consultant in framing these further analyses.

D. Standardization of Market Rules

    As recently announced, we intend to issue a notice of proposed 
rulemaking in this docket that will reform the open access tariffs to 
standardize market design rules, as appropriate. Our task in this 
rulemaking will be to balance the need to remove undue discrimination 
and excessive costs in transmission services with the need to permit 
regional differences and market innovation. The reformed tariff will be 
required to be filed by RTOs and other public utilities that own, 
operate or control interstate transmission facilities.
    During RTO Week we received many comments about the need for 
transmission tariff reform, and we also heard many views about the need 
for flexibility and market creativity in certain areas. RTO Week 
provided some concrete suggestions as to where flexibility is needed 
and where it will be a disadvantage. We look forward to receiving 
additional comments from the public on these issues.\2\ It is important 
not to compromise the benefits that transmission organizations have 
already conferred upon the public, and we are committed to making sure 
that transmission customers and the electric customers they serve will 
benefit as a result of this effort. We do not believe that the best way 
to create a national marketplace is to begin with the lowest common 
denominator, but instead intend to build on successful concepts here 
and in other countries.
---------------------------------------------------------------------------

    \2\ We encourage parties to view and file electronic comments at 
www.ferc.gov/electric/rto/mrkt-strct-comments/rm01-12-comments.htm. 
We will be holding staff follow-up conferences.
---------------------------------------------------------------------------

    The Commission recently issued an advance notice of proposed 
rulemaking in Docket No. RM02-1-000 on standardizing generation 
interconnection agreements and procedures. The first phase of our 
interconnection rulemaking process will be a Notice of Proposed 
Rulemaking (NOPR) on terms and conditions of interconnection services 
to be published in January, 2002. The second phase will be a separate 
NOPR on pricing issues associated with interconnections, to be 
published in April 2002. Interconnection rules are a critical piece of 
open access transmission services and RTOs initially will be required 
to follow the same interconnection policies that we set forth for other 
public utilities in the new rules. These rules will help support 
appropriately sited generation and appropriately priced infrastructure 
for new generation. It is clear that resolution of the pricing issue 
early in this process will allow for swifter consensus on broader RTO 
issues.

E. Timeline/Status

    As noted above, numerous filings are pending involving RTO 
development. The Commission intends to issue future orders addressing 
the pending filings and providing specific guidance once it has 
received comments from the state regional panels as discussed above.
    In recognition of the fact that RTO development is in very 
different stages in various parts of the country and that it is not 
possible for all RTOs to be in operation by the December 15, 2001 
deadline established in Order No. 2000, we intend to address in our 
future orders the establishment of a progressive, but appropriately 
measured, timeline for continuing RTO progress in each general region. 
The Commission is particularly cognizant of the critical importance of 
keeping parties focused on performing RTO functions now while 
positioning for future, more regional integration. In particular, 
information systems are especially challenging to coordinate and must 
be handled with diligence and care. Any timetable ultimately adopted 
for regional integration must be based on a sound business plan with 
substantive buy-in from a cross-section of market participants.

Conclusion

    This effort to create a seamless, national electricity marketplace 
is similar to that led by the Commission in the natural gas industry a 
decade ago. In that regard, the Commission calls upon all interested 
parties to commit the necessary time and resources to a thorough and 
expedient completion of the industry transition.
    This order is not intended to provide final rulings with respect to 
creation of RTOs, but to lay out our goals and process for their 
creation. We have invited public comments subsequent to RTO Week, and 
we reiterate our willingness to consider the opinions of market 
participants, state commissions and the general public as we move to 
complete this transition. Although we strive for consensus where it can 
be reached, we are aware that the long-term success of regional 
electric markets will require the Commission to make timely and clear 
policy decisions. For that reason, we are committed to a broad and open 
process that will allow for the most developed record possible.

    By the Commission.
David P. Boergers,
Secretary.
[FR Doc. 01-28573 Filed 11-14-01; 8:45 am]
BILLING CODE 6717-01-P