Henger's summary of the major cases discussed at FERC's October 24th Meeting:
	


	JOHN & HENGERER
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MATTHEW T. RICK
ELIZABETH A. ZEMBRUSKI


	October 24, 2001




Via Internet
MEMORANDUM

TO:		Interested Clients

FROM:		John & Hengerer




RE:		Commission Meeting -- October 24, 2001

At today's lengthy Commission meeting, the Commissioners approved the consent agenda and then discussed the items detailed below. 

ELECTRIC MATTERS

State Participation in RTO Development Process
In light of comments voiced during last week's RTO workshops, Commissioner Brownell
suggested that avenues for participation by the State Commissions in the RTO development process need to be explored.  She suggested that one option might be to establish regional panels made up of state commission representatives.  Commissioner Brownell further suggested that state commissions, perhaps through such regional panels, could explore issues related to RTO set-up, adequacy of revenue requirements, demand-side management programs, market monitoring and mitigation, and distributed generation.

The other Commissioners generally echoed Commissioner Brownell's sentiment, although Commissioner Massey cautioned that the pace of RTO development should not be slowed by excessive or redundant administrative procedures and costs.  The Commissioners unanimously voted to instruct Staff to develop proposals for greater state commission involvement, and to present their proposals to the Commissioners at an upcoming agenda meeting.  At this point, the initiative appears to be designed to explore alternatives.  More concrete proposals, however, could be included in the broader RTO strategy the Commission is expected to announce in the near future.

Discussion of RTO Development Process in Southeast, Docket No. EX02-1
Staff began the discussion with a power point presentation on the Southeast RTO mediation process, noting that participants had reached a consensus on most issues, including market monitoring, operational authority, short-term reliability, and planning.  Staff explained that consensus could not be reached on issues of governance and independence and provided an overview of the two competing RTO Models outlined in the Judge McCartney=s mediation report.  After briefly describing the Collaborative Governance (CG) model and Independent System Administrator (ISA) model, Staff identified positives and negatives for both.  Staff did not take a position on which model should be approved by FERC; rather, it concluded that either model satisfies the requirements of Order No. 2000.  Staff also noted that in the Southeast, participation by public power is essential to the formation of a functioning RTO in the region.

After Staff=s presentation, Judge McCartney and Herbert Tate (former New Jersey Chairman) discussed the proceeding with the Commissioners.  Specific issues discussed included: public power participation, concern over independence in the ISA model, whether the ISA was analogous to current ISOs, and the allocation of functions in the CG model.  Overall, Judge McCartney expressed support for CG model, citing concerns over independence in the ISA model as well as, what she viewed as, the experimental nature of the ISA proposal.  As a former state commissioner, Mr. Tate outlined the concerns expressed by the state commissions during the mediation period.  In their final recommendations, both Judge McCartney and Mr. Tate encouraged the Commission to provide additional guidance as to the essential elements or principles to structure RTOs.

Discussion of RTO Developments in the Northeast, Docket No. EX02-2
Staff began this discussion item with a presentation on the Northeast RTO mediation process.  Staff explained that a Business Plan was issued to implement the Northeast RTO.  The Business Plan consists of eight sections: post-mediation process, governance, market design, operations, technology assessment, transmission tariff-related issues, regional transmission planning, and interregional coordination.  Staff did not detail the content of the Business Plan, but noted that in the two areas where there was disagreement B governance and market design options B the plan included three alternatives for each.

Staff=s presentation was followed by a discussion with Judge Young and Joe Garcia (former Florida Commissioner).  Judge Young explained that the Business Plan provides a viable blueprint for the formation of the Northeast RTO.  He noted that several issues must still be resolved, including: governance, market design, and shareholder process.  Judge Young reiterated his recommendation that a independent, non-vendor expert should analyze the technology of the three ISOs to assess whether entirely new software will be necessary to implement the Northeast RTO.  In response to Commissioner Breathitt, Staff explained that software is one of the biggest hurdles in the Northeast RTO.  Mr. Garcia expressed some concern that the ALJ and participants could waste too must time attempting to achieve the perfect RTO.

Chairman Wood noted that the Commission=s intention is to leave the region better, not worse off, than pre-RTO.  He also explained that the Northeast is in a better position to form a viable RTO than the other regions because of the maturity of its markets.  Commissioner Brownell noted that inconsistencies between the existing ISOs are working against retail competition programs in the Northeast region.  She cautioned against proceeding too slowly with regard to RTO formation.  Commissioner Wood noted that there are some issues that can be resolved relatively quickly, for example, regional transmission planning, real-time imbalance market software.

In response to Chairman Wood, the Judge Young and Mr. Garcia provided recommendations.  Mr. Garcia explained that the Business Plan provided participants with a basic plan and asked the Commission to provide guidance in the areas were there was divergence.  He also encouraged the Commission to issue a decision in the near future, noting that the Commission should let parties litigate jurisdictional issues so that RTO issues could be resolved sooner rather than later.  Judge Young encouraged the Commission to take the time to assess market design in order to prevent a further waste of time and money in the likelihood that the chosen market design proves unworkable.  Judge Young also requested that the Commission provide additional guidance on the parameters of Abest practices,@ governance structure, market design, and stakeholder process.
Discussion of RTO Developments in the Midwest, Docket No. EX02-3
Staff provided an update of recent developments in the Midwest.  A settlement agreement between Alliance and MISO, approved by the Commission earlier this year, provides the basis for developing a seamless market in the region that will be served by the two groups.  Under the terms of the Illinois power settlement, the financial viability of MISO is guaranteed, the Alliance business model is preserved, and seams issues between MISO and Alliance are addressed.   Staff explained that the seams agreement provides for one-stop shopping, congestion information on a joint bulletin board, an imbalance market, transmission planning, and market monitoring.    

Staff explained that both MISO and Alliance recently filed status reports with the Commission addressing their ability to be functional and the seams agreement included in the settlement previously approved by the Commission.  Alliance noted that a proposal by National Grid USA (EL01-80-01) to manage the Alliance RTO, along with Alliance's's proposed Business Plan, are critical to the RTO's start-up.  Alliance reports that it would take up to 120 days to initiate operations once it has received final Commission approval.  

In response to Commissioner Brownell, Staff maintained that both MISO and Alliance have made progress in addressing seams issues.  Staff expressed satisfaction with both the substance and timing of the entities filings.

There was some discussion over the division of functions between MISO and Alliance.  Chairman Wood noted that, if there is going to be one regional entity with not for-profit and for-profit entities, the Commission will have to address how the functions should be split.  Chairman Wood also expressed concern that a viable wholesale market may not result if all the functions were delegated to the for-profit entity.

Discussion of Western Infrastructure Adequacy Conference, Docket No. AD01-2
First in a series of regional meetings on infrastructure, the Western Infrastructure Adequacy Conference will be held in Seattle on November 2, 2001.  Staff identified three main questions to be addressed at the meeting:  (i) whether the current infrastructure is adequate; (ii) the infrastructure needs of the region, and (iii) the factors that are inhibiting adequate investment in infrastructure.  Such questions will be addressed within the context of the outlook for growth and population increases in the region as well as the outlook for future energy needs.  The Commission hopes to determine what the states and the federal government can do to encourage infrastructure investment.  

Next, Staff gave a power point presentation on the infrastructure throughout the United States.  This presentation, which breaks down energy infrastructure by fuel use and price-responsive demand, can be accessed by the public on the Commission=s website under AFERC Discussion Papers.@  Staff noted that gas is the primary fuel in West and that use of gas continues to rise within the region.  In a separate presentation, Staff then presented its findings on its western infrastructure assessment which began in August.  Staff has collected data and analyzed information on Western infrastructure, with a final assessment available Friday, October 26, 2001.  

The western infrastructure assessment was broken into three sections: demand, supply, markets, and transmission.  With regard to demand, Staff traced the population and consumption differences over past few years in the West.  Staff noted that the Southwest started to consume larger amounts of gas and electricity because of population and economic growth.  Staff traced gas uses, growth, total capacity, and peak loads within Western region, as well as projections for demand, capacity, use, and infrastructure.  Next, Staff provided an overview of the supply of electricity, hydropower and gas in the United States.  Staff asserted that proven and potential gas reverses in United States could provide supply for next 50 years.  In the portion of the presentation on markets, Staff identified the primary trading hubs in the West and the average monthly spot market prices and monthly trading volumes in the region. Staff also noted that recently, there has been a downward shift in the gas futures market for the West which it attributed to lower temperatures, more capacity, lower gas prices and the Commission=s price mitigation plan.  Finally, Staff provided an overview of transmission projects in the Western region.

New York Independent System Operator, Inc., Docket No. ER01-2967
Cinergy Services, Inc., Docket Nos. ER01-2984 and ER01-3022
Commonwealth Edison Company, Docket ER01-2985
American Electric Power Service Corp., ER01-2163
In a July 2001 order in Docket No. ER01-2163, the Commission denied a transmission provider=s request to receive interest on system upgrade payments.  In this draft order, the Commission issued an interim order which granting rehearing on this issue.  

The Commission will address the issue of interest on system upgrade payments in the generic proceeding addressing transmission interconnection.  Commissioner Breathitt dissented in part, maintaining that the Commission should not issue an interim order, but, instead should address the issue in the transmission interconnection proceeding where the ramifications can be more fully explored.  Commissioner Massey and Wood voiced their support for the order, noting that if generators are treated as banks, they should receive interest.  However, Commission Massey explained that as a long-term issue, he has an open mind as to how the generation costs should be allocated. 

Kern River Gas Transmission Company, Docket Nos. CP01-70 and CP01-31  
There was no Staff presentation on these two items which were placed on the discussion agenda by Commissioner Breathitt.  Although she concurred with the decision, Commissioner Breathitt expressed concern over intervenors allegations that the pipeline expansion would negatively impact the availability of take-away capacity on the Kern River system.  Commissioner Breathitt noted that in determining whether pipeline expansions are in the public convenience and necessity, the Commission must address concerns that there will be a degradation of existing shippers firm rights.  



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