Mandating regional transmission organizations (RTOs) isn’t mandating deregulation but it will eventually have that effect if the Federal Energy Regulatory Commission (FERC) gets its wish, said Central District Public Service Commissioner Nielsen Cochran, a member of the National Association of Regulatory Utility Commission.
“I think ultimately, and (FERC chairman) Pat Wood has clearly indicated as much, that’s his goal — to move toward mandated retail deregulation,” said Cochran. “Once you open up your transmission to everyone in the U.S. at a price approved by the federal government, then certainly that is a clear indication to me that the next step is some mandated retail competition at the local level.”
After three years of hearings, the Mississippi Public Service Commission decided in 2000 that electricity deregulation would not serve the best interest of all Mississippians, partly because of the debacle that occurred when California became a deregulated state. More recently, Texas has reported troubles because of its newly deregulated status.
“Texas is in a competitive mode — it’s a self-generated transmission state —and it isn’t working like they had hoped in Texas,” said Cochran. “Some states have moved into selected degrees of industrial competitiveness, like Illinois and Pennsylvania. But most states have either backed away totally or have legislatively put a halt to any movement toward competition and right now everyone’s holding their breath to see what the federal government’s going to mandate in the energy bill they’re considering.”
The energy bill being debated in the Senate, a revision of the Power Act, has been mired in controversy because of the portion dealing with electricity mandates.
“FERC doesn’t have the authority, in my opinion, to force states to join an RTO, but that certainly doesn’t preclude Congress from giving them that authority in the energy bill now being debated,” said Cochran. “I think FERC is attempting to get Congress to do it under the guise that it’s in the best interest of the country. If Congress acquiesces and gives them the authority to force companies to be part of an RTO, I say let’s go to court.”
Under FERC’s plan, four or five geographically homogenous RTOs would be created in the U.S., and energy companies like Entergy and Mississippi Power Company would be required to turn over their transmission lines to the RTOs. For example, FERC is considering a nine-state RTO for the South, which would be administered by a third party. States would lose jurisdiction over transmission systems currently utilized and paid for by Mississippi consumers.
“Under the proposed RTOs, native load would be jeopardized,” said Cochran. “Standard market design (SMD) would raise questions about cost and how that market design is reconfigured. There would be additional costs to Mississippi consumers without any reduction or savings in the cost of electricity.”
The federal government would dictate the jurisdictional issue and set the standard pricing for use of the system.
“It’s like anything else — follow the money,” said Cochran. “The money is where there is going to be an interest on behalf of independent power producers and Wall Street to utilize existing facilities at a fair market price approved by the federal government. Eventually you get to a scenario where there’s a blockage somewhere on the system in the nine-state area. Of course, the third-party transmission organization would then say, ‘Well, we need to build additional transmission facilities, say from Charleston to Raleigh.’ Who pays for that? Do all the members that belong to the RTOs pay for that? Do the ratepayers in Charleston and Raleigh pay for it? No. Using some farm sense, you realize that all participants in your RTO are going to use it, then I suggest that all participants are going to have to pay for it.”
The concept of the federal government having so much authority over your retail energy industry is dangerous, said Cochran.
“The feds can’t fix Social Security, they couldn’t run a post office, the bank they ran in D.C. was accused of mismanagement,” he said. “Look at the railroads, and now they want to take over the transmission of electricity in this country? The reality of it would be devastating financially to consumers in Mississippi.”
At first, RTOs were going to be set up for-profit, but the latest word is that they will be not-for-profit, said Cochran.
“Even so, there’s going to have to be some administrative cost associated with the organizational structure,” he said. “There will have to be an independent provider or operator who will make the daily decisions. That’s an administrative cost added to everyone’s electrical bill. It’s just another layer of bureaucracy to something that is serving the state well right now, which is a regulated monopolistic environment where our rates are less than they were in 1986. We have some of the very lowest rates in the country right now. To give up that reliability issue is frightening.”
Would electric power associations (EPAs) be especially hurt?
“It depends on whether or not they would be involved in any deregulation,” said Cochran. “For example, FERC is pursuing letting the electric power associations ‘opt in’ to RTOs. The question is whether EPAs would voluntarily participate. FERC is looking to mandate that stockholder- or investor-owned utilities be required to participate in an RTO.”
Wood, who took over as FERC chairman when Mississippian Curt Hebert stepped down in 2001, has been pushing retail competition. Hebert was in favor of RTOs — as long as it was done on a voluntary basis and not mandated.
“The three of us on this (Mississippi Public Service) commission are unanimously opposed to mandatory participation simply because we don’t want to jeopardize the stability, reliability or pricing of electricity as it relates to our native load, our Mississippi consumers,” said Cochran. “If we see something that questions financial stability and doesn’t benefit our consumers, we’re not going to sit back and twiddle our thumbs. I don’t think that would be the right thing to do.”
Contact MBJ contributing writer Lynne W. Jeter at firstname.lastname@example.org.