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Performance Metrics

Energy Biz Magazine...May-June 2010

FERC Takes Stock

by Stephen Barlas

Retail, municipal and industrial consumers of electricity are pressing the Federal Energy Regulatory Commission (FERC) to impose new "performance metric" reporting requirements on Regional Transmission Organizations (RTOs), the big grid management organizations who wholesale energy to about two-thirds of the users in the United States. Ultimately, the aim of groups such as the Electricity Consumers Resource Council (ELCON) and American Public Power Association (APPA) is to get more information on electric generator costs and pricing to prove their suspicion that RTO rates are unreasonably high.
A rulemaking is expected this year as the result of FERC's issued on February 3 of 14 draft metrics in three categories: reliability, market and organization. One market performance metric, for example, would be market pricing, where the RTOs and ISOs would have to report three things, including load-weighted locational marginal price. Publication of those draft metrics, which are only a first cut, was FERC's response to a Government Accountability Office (GAO) report in 2008 whose conclusion stated: "It has been over 10 years since major federal electricity restructuring was introduced and some of the first RTOs were developed to facilitate it, yet there is little agreement about whether restructuring and RTOs have been good for consumers, how they have affected electricity prices, and whether they have produced the benefits FERC envisioned."
Barbara Connors, a FERC spokeswoman, says the commission is reviewing the comments it received on its draft metrics and is determining its next step. The GAO report was requested by Sens. Joseph Lieberman (Ind.-CT) and Susan Collins (R-ME). They are the chairman and top GOPer on the Senate Committee on Homeland Security and Governmental Affairs. "They are watching what FERC is doing," says one consumer lobbyist.
The RTOs have been in operation since 1999 when the FERC issued Order 2000 to encourage the formation of independent entities to manage regional networks of electric transmission lines. FERC estimated the benefits of RTOs would be at least $2.4 billion annually, due to cost savings from the improved operational efficiency of generators, easier access to transmission service, and other factors. The Independent System Operators (ISOs) were formed prior to Order 2000, and are very similar to RTOs except they cover single states; but FERC and everyone else uses the terms RTO to encompass ISOs.
FERC has approved six RTOs: ISO New England, Midwest ISO, PJM Interconnection, Southwest Power Pool, California ISO and New York ISO. The Electric Reliability Council of Texas, an Independent System Operator, is primarily regulated by the Public Utility Commission of Texas.
The draft metrics FERC released on February 3 became the major controversy at a February 4 technical conference called to examine a second RTO issue related to organizational governance. At that meeting, John Anderson, president of ELCON, complained that the metrics FERC had suggested the day before had no metric devoted to electric generators. "Our organizations strongly believe that measurement of the revenues and production costs of the generators selling power into RTO markets is highly relevant to the questions the GAO posed,” Anderson said.
But FERC Chairman Jon Wellinghoff responded, “Now my colleagues may differ with me, but I will tell you today personally that I don’t think that metric is one that I’m going to be advocating for unless you can somehow compellingly convince me that it is, and right now, today, I’m not convinced.”
Joe Nipper, senior vice president of the APPA, says his group was "distressed" by Wellinghoff's comments. Consumers want generator metrics in order to prove their suspicion, buttressed by previous though inconclusive studies, that electric rates inside RTOs are higher than outside RTOs. But given Wellinghoff's stated position and the fact that Commissioners Moeller and Spitzer are not considered APPA allies, the odds of FERC mandating generator-specific metrics seem low.
Tara Ormond, director of regulatory affairs for the Electric Power Supply Association, which represents most of the large electric generators and transmission companies participating in RTOs, says, "There is a huge divergence between APPA, ELCON and us. They want sweeping changes." She adds that some of the metrics FERC proposed are good, some might be detrimental. More broadly, she states, "Consumers are better served by RTOs given that there is little transparency on rates in bilateral markets."