A Trilogy of Orders for Wholesale Markets in the Electric Power Industry
While probably not as great a read as J.R.R. Tolkien’s Lord of the Rings trilogy, and no movie is in the making, the utility industry follows a trilogy of orders authored by the Federal Energy Regulatory Commission (FERC) to conduct transmission business. FERC Orders 888, 889 and 2000, refer to landmark directives issued from 1996-99 for the power industry. Enabled by the 1992 Federal Power Act, the FERC trilogy substantially changed the operation of the transmission grid.
In summary, the ‘92 Power Act gave the FERC authority to order vertically-integrated utilities and transmission owners to lease their lines to all utilities for distribution to retail customers. Among other benefits, the ensuing arrangement eliminated the problem of rate “pancaking” (charging multiple transmission fees for one transaction).
The trilogy of orders include:
The first order of the trilogy restructured the electric industry and attempted to remedy “undue discrimination in access to the monopoly owned transmission wires that control whether and to whom electricity can be transported in interstate commerce.” The order requires all public utilities that own, control, or operate transmission facilities to file tariffs that contain minimum terms and conditions of service.
It also permits public utilities and transmitting utilities to seek recovery of legitimate, prudent, and verifiable stranded costs associated with providing, building, and maintaining open access transmission services. RTOs approve recovery of costs, verify and validate transactions, and functionally control the transmission system in their “footprint”.
Instrumental to operating a modern-day, instantaneous, wholesale bulk power system, Order 889 created an electronic bulletin board, called Open Access Same-time Information System (OASIS), that allows users to receive data regarding the transmission system’s operating status and capacity at any location. OASIS allows trades in the market to occur.
Although RTOs have considerable oversight, they do not own, directly dispatch, or operate generating units or transmission. Utilities and independent operators own, dispatch, and operate the physical facilities that generate and deliver power to end-use customers. Order 889 also outlines standards of conduct and protocols followed by power market participants.
In the final order of the trilogy, the FERC required all FERC-jurisdictional utilities/investor-owned utilities (IOUs) that own, operate, or control transmission lines (transmission of power from generating plants to distribution substations) to turn operational control of those lines to an independent agency (independent system operator or regional transmission organization). Since public power utilities and rural electric cooperatives are exempt from most FERC regulation, the FERC fosters and encourages opportunities for customer-owned utilities to participate in the wholesale marketplace and recover costs in similar ways that IOUs do.
|Promoting Functioning, Competitive Wholesale Electricity Markets
The goals for ensuring more efficient, lower cost power to the nation’s electricity consumers through the FERC trilogy have not been realized. Electricity prices are, on average, higher in RTO regions, and scant evidence exists that higher prices have produced greater levels of reliability or investment in the new infrastructure necessary for the operation of the grid.
Public power utilities and their trade associations, the Minnesota Municipal Utilities Association (MMUA) and the American Public Power Association (APPA), advocate at FERC and in Congress to support RTO reforms that move to achieve just and reasonable wholesale electricity rates. In the near term, public power utilities seek to retain and improve the ability to self-supply as a load-serving entity through resources a utility owns, builds, controls, or obtains by contract.
As wholesale power market rules continue to evolve, you can count on CMPAS members and the public power community to focus on customers in the delivery of reliable, price competitive, and environmentally-sound electricity.
If you have any questions about the Orders, don’t hesitate to contact our team!