While the transmission grid physically connects great swaths of the country, governance of its many segments varies by state and utility. The Federal Energy Regulatory Commission (FERC) is pushing Congress to unify the transmission system to make it easier to connect buyers and sellers of electricity. If a seamless structure were to be created under Regional Transmission Organizations (RTOs) that worked as “traffic cops” and were able to ensure reliability and impose penalties, the energy sector would become ultimately more attractive to investors and new sources of generation and transmission would therefore get built.

While not waiting for federal legislation, many utilities have voluntarily organized regional transmission organizations under FERC guidelines. Besides PJM, the largest and oldest regional transmission organization, NY Independent System Operator (ISO) and MISO, there is the New England ISO and the Electric Reliability Council of Texas ISO. Three such organizations are proposed for the Western states: the California ISO, RTO West for the Pacific Northwest and WestConnect to serve the Southwest. RTOs and ISOs are the functional equivalent of one another.

Some lawmakers representing the Northwest and Southeast, however, have threatened legislation that would cut off FERC's funding if the proposal advances because they fear low-cost power developed by their ratepayers could be sent to higher-cost areas of the country. Still, FERC wants authority to compel investor-owned utilities to join regional RTOs. Public utilities would remain exempt from FERC's rule.

Several legislative options appear likely in the new Congress, according to analysis by Merrill Lynch.

o “BEST OUTLOOK” (low odds, but improving): A solid endorsement of RTOs from Congress, with mandatory RTOs and no delay in FERC's Standard Market Design (SMD) program. “Coherent regional cooperation could meaningfully facilitate the planning and rate recovery of sizeable transmission system improvements within 12 months.

o “MIDDLING OUTLOOK” (highly possible): Congress makes it clear that voluntary RTOs can continue in the regions that want them (Midwest, Northeast, Mid-Atlantic) and if SMD is delayed, the legislative prohibition doesn't prove problematic for FERC approving in-process RTOs. The incremental transmission investment outlook would be better in the Northeast, Midwest and Mid-Atlantic, but not as fast as it could be under the best case.

o “WORST OUTLOOK” (a real possibility for Northeast and Midwest transmission owners): Congress delays SMD, with language that makes ongoing RTO proceedings problematic. In-process RTOs could face legal hurdles and delays if SMD opponents start questioning RTO proceedings. Only marginal projects would take place, with little incremental investment materializing. Unfortunately, state regulators are unwilling to give up their powers to a federal agency. Unless states give up their sovereignty, there can be no nationally integrated grid.

Meantime, several news items indicate that RTO expansion is on the move. The Midwest Independent Transmission System Operator Inc. (Midwest ISO) announced it has achieved several important milestones in preparation for the March 1, 2005, launch of its Midwest Energy Markets. Midwest ISO President and CEO James P. Torgerson said the organization is definitely on course for the scheduled start date (at the time this issue went to press).

Midwest ISO, in its role as a regional transmission organization, monitors electric reliability throughout much of the Midwest-an area that encompasses more than 97,000 miles of interconnected, high-voltage transmission lines in 15 states and one Canadian province. Midwest ISO is responsible for more than 107,000MW of peak load and 132,000MW of generation. Midwest ISO is responsible for coordinating the operation of the wholesale electric transmission system and ensuring fair access to the grid. For more information visit www.midwestiso.org

ISO New England began operating as a Regional Transmission Organization (RTO) on Feb. 1, 2005. The report said, “ISO New England's transition to an RTO will strengthen the independent and efficient management of the region's bulk power system and wholesale electricity markets.”

Finally, Duquesne Light Company, a subsidiary of Duquesne Light Holdings (NYSE: DQE), and PJM Interconnection, announced that PJM began managing the flow of wholesale electricity for the Pittsburgh-based electric utility. Duquesne Light's integration into PJM involves transferring control, but not ownership, of transmission assets including 670 miles of high-voltage transmission lines. With Duquesne Light, PJM increases the length of transmission lines it manages to 49,970 miles, its peak load to 110,700 megawatts, its territory served to 138,510 square miles and its service to 45.3 million people in Delaware, Indiana, Illinois, Kentucky, Maryland, Michigan, New Jersey, Ohio, Pennsylvania, Tennessee, Virginia, West Virginia and the District of Columbia. EC

TAGLIAFERRE is proprietor of C-E-C Group. He may be reached at 703.321.9268 or lewtag@aol.com.