Wholesale Restructuring 1 PURPA 2 Market based wholesale

Wholesale Restructuring 1. PURPA 2. Market based wholesale rates 3. Incentive rates 4. Energy Policy Act of 1992 • Clarified power to order third party wheeling and to specify that service be offered nondiscriminatorily (“comparability”). • Ad hoc orders: FP&L case • PUHCA: EWGs and ownership issues

Toward Competition in Wholesale Markets Late 1990 s-present 1980 s and Early 1990 s Wholesale generators began to enter market with exemption from FPA requirements, even without PURPA benefits. Didn’t 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

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

Order 888 • All transmission line owners must: • file “open access non-discriminatory transmission tariffs” • provide transmission service for own wholesales on the same terms as provided in tariffs • provide real time information system for purchasing transmission service nondiscriminatorily (OASIS-Order 889) • transmission line owners may recover stranded costs through tariffs

Order 888 (cont’d) • Encouraged formation of ISOs • Sidestepped divestiture issue: required utility owners of lines not to treat inhouse purchasers of transmission services differently from outside buyers. But didn’t require formation of separate business units. • Contemplates continued need for FERC to monitor for ”generation dominance”

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?

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 wholesales; must show separate product and service costs • Growing wholesale markets increase need for technical grid management expertise (e. g. loop flows, safety, etc. )

Order 888/889 and ISOs • What is an ISO? What is a “transco”? What’s 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?

Major Wholesale Electricity Trading Hubs

Post-Order 888/889 • • Drastic increase in wholesales Rise of power marketers Increases in new IPP generation Yet no corresponding increase in investment in transmission facilities

• 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?

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

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?

Originally Proposed RTOs

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

RTO/ISO Map: January 2003

• 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?