FYI

Today's FERC meeting was a big deal.   Some of the key actions are:

DSTAR and RTO West are to be "married,"  The FERC wants a single western RTO but will wait on making CAISO merge with other western RTOs so that California can "heal its wounds." 
Every utility needs to declare which RTO it plans to join by 12/1/01 (or possibly 12/15; not sure of date).  Otherwise the utility will lose market-based rates, will be unable to get a merger approved, and will have its transmission rev req. scrutinized.
The commission favors 1 market structure applied to the four nationwide RTOs.   It plans on holding a week of workshops and issuing a NOPR to determine this structure.  The goal is to essentially re-issue the Order 888 tariff in a form that encompases the new functions of RTOs.  Although consistent business rules applied to large geographic markets are a good thing, expect this new effort and redefining the RTO to delay ultimate implementation.
Although California will be allowed to heal, it is ordering an operational audit of the Calfornia ISO.
Separately the FERC indicated the plan to issue a NOPR on market power and market based rates.   Expect new rules and procedure to determine whether a market is sufficiently competitive to allow for market based rates.

Further summary, prepared by Sarah Novosel in our Govt. Affairs DC office, is provided bel  o   w 


The Commission held its first open meeting with Pat Wood as the new Chairman today and discussed many interesting issues.  The following is a summary of the meeting.  The meeting is still going on, and we will provide an addendum to this email updating you on what was discussed this afternoon (regarding market power).

RTOs 

Chairman Wood expressed his desire to finish the RTO transition, and that the Commission needs to provide guidance and leadership in order to speed up the RTO transition.  Chairman Wood considers the RTO effort on two tracks:  1) organizational -- what will the RTO organizations look like, and 2) substantive -- once you set up the organizations, what will they do.

Organizational Effort:  Wood stated that this effort has already begun with the July 12 orders and the Northeast and Southeast mediation efforts.  The Commission will be issuing additional orders in the northeast, southeast and Midwest within the next couple of FERC meetings.  Wood also stated that it is time for RTO West and Desert Star to "marry up," meaning, I suppose, that the two should consolidate.  Wood does not think that California can be included in the western RTO yet since it has lingering problems.

Structural Effort:  The Commission will initiate a section 206 proceeding to address market design and structure issues in order to translate the 8 functions established in Order No. 2000 into RTO structures.  To achieve this goal, the Commission is establishing an "RTO week" of advanced workshops, from October 15-19, in advance of issuing a NOPR, to address structural issues such as:  congestion management; cost recovery; market monitoring; transmission planning; reliability; transmission rights.  Wood also envisions that the Commission will develop a new pro forma tariff to replace the existing Order No. 888 transmission tariff.  The new tariff will apply to all public utilities and RTOs.

Wood also recognized that some "sticks" are needed to entice RTO participation.  Therefore, Wood proposes to have all public utilities come in by December 15, 2001 with a declaration to join an RTO.  If they do not make this declaration, these entities will have their market based rate authority revoked on a prospective basis.  Furthermore, Wood states that if entities do not join RTOs, they should not be authorized to merge their facilities, and that FERC will also look at their rates to determine whether they are still just and reasonable rates compared with rates offered by RTOs.  Wood states that these "sticks" provide incentive, but do not mandate, RTO participation.

With regard to the pending requests for rehearing, Wood asked legal staff to figure out how "FERC can get there."  In other words, I think Wood is telling them to develop the legal analysis for denying rehearing.

While Commissioner Breathitt is skeptical about some of these RTO proposals, because she was not required to vote on anything today, she only expressed her concern.

Upcoming Dates

	October 15-19 --	RTO Workshops
	End of October -- further orders on Northeast, Southeast, Midwest RTOs
	December 15, 2001 -- all public utilities must commit to an RTO or have their market based rates revoked


Proposed Rule for Standards of Conduct

Within the next few days, FERC will be issuing a Notice of Proposed Rulemaking ("NOPR") on standards of conduct for transmission providers.  As explained at the meeting (we do not have a copy of the NOPR yet), the NOPR will propose to apply standards of conduct uniformly to electric transmission providers and gas pipeline transportation providers similarly.  The NOPR also proposes to broaden the definition of affiliate to include all energy affiliates, not just marketers.  The standards of conduct would not apply to RTOs and transmission providers who are members of an RTO may ask for an exemption from the standards.

The NOPR will also likely include a proposal that the standards apply to transmission-owners' marketing affiliates that are serving native load customers.  As you know, the present standards do not apply to the affiliates of TOs that are only buying and selling power for native load customers.  As the interim general counsel noted, these marketing affiliates can go into the control room and have unrestricted interaction with the TO.  

There was some discussion of whether it is necessary to apply the standards to affiliates serving native load.  Staff told the Commissioners that market participants have been complaining for years about this loop hole in the rules.  Pat Wood said they will include the proposal in the NOPR (Breathitt may not support), but if the industry does not support the proposal, FERC will pull it.  We of course will strongly support the proposal.

Provision of Adequate Electrical Capacity (ICAP)

Chairman Wood asked Staff to prepare a presentation on reserves and installed capacity requirements.  Wood noted that the Commission had to issue an order on ICAP in New England during their recess in August, and he is not that familiar with the issues.  Therefore, he asked Staff to prepare a presentation, which they made at the meeting this morning.  The presentation will be made public within the next couple of days.  In sum, Staff seems to believe that some type of ICAP requirement is needed for reliability.  

After the presentation, Wood noted that the New England ICAP order has enough wiggle room to allow the Commission to change its mind once the commissioners better understand the issue.  Wood sees that there is a potential conflict between decentralized, competitive markets and the need for sufficient supply (without politically unacceptable, prolonged price spikes).  

Commissioner Brownell (from the Pennsylvania PUC) has a better understanding of  ICAP and expressed concerns that ICAP may be an outdated tool that acts as a barrier to entry without any definable benefit to customers.  

Realizing that there are many positions on this topic, Chairman Wood said he will publish the Staff report and ask for comments by October 17.  We will definitely submit comments on this and will include everyone in the drafting process.

Sorry this is so long, but a lot happened today.  We will provide a summary of the market power discussion as soon as it is over.  Let us know if you have any questions.

Sarah