5.3. ERMUSR 03-14-2006 - Laserfiche WebLink

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~A~~~.~~ ~,,,,~/ Minnesota Municipal Uti/ities Association Position statement Transmission and RTOs The Energy Policy Act of 2005 (EPAct 2005), while far from perfect, was a step in the right direction in several areas, and was supported by public power due to the addition of several key provisions: • Mandatory, enforceable reliability standards; • Federal backstop authority for transmission siting; • New authority by the Federal Energy Regulatory Commission (FERC) to prevent market manipulation; and • Preserving long-term transmission rights for load-serving entities. Despite the best efforts of Congress and FERC to develop efficient wholesale markets, public power communities are finding it more difficult than ever to secure reliable and reasonably priced wholesale power as a result of FERC decisions concerning the governance of the transmission network. Public power entities have encountered serious problems in dealing with the regional transmission organizations (RTOs) designated by FERC to manage the regional transmission grid. In order to continue to provide their electric customers with reliable power at reasonable rates, Minnesota municipal electric utilities will need FERC to play a more proactive role to ensure the construction of adequate transmission facilities, workable transmission policies, and adequate implementation of new rules promulgated as a result of EPAct 2005. Specifically, several key issues worth watching include: RTO Accountability. RTOs were originally formed with the idea of benefiting consumers by adopting policies promoting non-discriminatory transmission service, regional long-term planning and timely investments in transmission facilities. Instead, they have increasingly resorted to questionable pricing practices to deal with transmission congestion rather than adopting policies designed to lower costs and to improve service. At the same time, there is a growing concern that RTOs are resisting any questioning of the economic theories underpinning these actions. Other problems with the RTOs include: spiraling RTO costs, unaccountable governance, lack of understanding of end-user needs and less than satisfactory service options. Market Manipulation. Power supply markets have become more concentrated. Merely requiring open access transmission has not made those markets workably competitive. The repeal of the Public Utility Holding Company Act (PUHCA) could potentially increase the concentration of these markets. The use of locational marginal pricing (LMP) allows certain stakeholders to benefit from