INTERSTATE POWER MARKETS THE MIDWEST VIEW

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INTERSTATE POWER MARKETS THE MIDWEST VIEW

• A PRESENTATION FOR THE NATIONAL GOVERNORS
  ASSOCIATION EXECUTIVE POLICY FORUM

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I. Background

• Need for regional wholesale market no matter
  how well your state structures retail access,
  without a robust wholesale market, it wont work
  compare CA with PA.
• FERC Order 888 creating open access
  transmission grid. To be taken up by U.S.
  Supreme Court in 2002. Challenge to FERC
  authority by various states. If reversed, the
  ability to foster regional markets may be in
  jeopardy.

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• FERC Order 2000 need for stronger hammer. FERC
  noted it could exercise greater authority but
  chose not to. Voluntary compliance is no
  compliance at all. Sharp contrast to 888.
• History of Midwest/Alliance RTO MISO and
  Alliance used different models (profit v.
  non-profit). MISO spent more than 120 million
  in reliance on FERC orders. FERC then favored
  (thru approval of ITC rate proposal) Alliance in
  subsequent orders. Merger talks were fruitless.
  Settlement of IL. Power withdrawal allowed for
  preservation of MISO. Creation of virtual RTO.
  All RTO functions performed by virtual RTO.

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II. Functions of Virtual (or real) RTO from
Order 2000

• Market Monitoring one problem with CA is that
  nothing was done after market monitoring revealed
  a coming storm 1999 not just an environmental
  thing no one entity could act on information.
• Congestion Management is there incentive to
  deal with needed upgrades? Dumont transormer in
  IN would, if upgraded, benefit MI retail access
  program. AEP would not benefit. RTO will help.

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• Security Coordination Congressional attempts to
  give more federal authority have thus far failed.
  NERC may contract out this function. Important
  that RTO is responsible for reliability (unlike
  CA).
• Rate Administration single rate (with ZTA)
  throughout region established by settlement.
• Inter-Regional Coordination coordinating the
  planning and expansion of grid.

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III. Role of States in Development of Interstate
Power Markets

• Less Parochial states realize need for federal
  oversight. Need to delineate federal/state
  roles.
• States, by unifying in region, were able to
  direct negotiations toward single rate in Midwest.

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• Like generation, states must create incentives
  for building new transmission, sell public on
  need.
• Effect of state rate caps on transmission pricing
  need for competitive transmission rates.