Utility owned generator

Federal Power Project

Distribution System

Residential users

Commercial users

Industrial users

Municipal Utility

Residential users

Commercial users

Industrial users

Pre-PURPAOtter Tail (1973)

Wholesale Restructuring: Initial steps

1. 1978: PURPA

2. 1980s-present: Rate experiments

3. 1992: Energy Policy Act

4. 1996: Order 888

5. 2000: Order 2000

6. 2000-present: fundamental changes and restructuring of wholesale market and transmission system underway.

PURPA authorized FERC to order third party wheeling, but only if:

• No “uncompensated economic loss” or “undue burden” would result,

• It would not impair the provision of reliable electric service, or

• It would “reasonably preserve existing competitive relationships”

Why would these be impediments to FERC-ordered third party wheeling?

QF IPP

Utility owned generator

Federal Power Project

Distribution System

Residential users

Commercial users

Industrial users

Municipal Utility

Residential users

Commercial users

Industrial users

Post-PURPA

Wholesale Restructuring1. PURPA

2. Market based wholesale rates

• 1980s: FERC made this option available to QFs/IPPs who lacked market power over buyers.

• 1980s/90s: state moves toward competitive bidding and least cost generation procurement

• Why did QFs and IPPs need or want market based rates?

Wholesale Restructuring1. PURPA

2. Market based wholesale rates

• 1980s: FERC made this option available to QFs/IPPs who lacked market power over buyers.

• 1980s/90s: state moves toward competitive bidding and least cost generation procurement

• Dartmouth Power Associates (FERC, 1990)

• What is the issue here? What does it matter whether there is an active market for QF/IPP capacity in New England, or whether Dartmouth plays a large role in that market?

Wholesale Restructuring1. PURPA

2. Market based wholesale rates

• 1980s: FERC made this option available to QFs/IPPs who lacked market power over buyers.

• 1980s/90s: state moves toward competitive bidding and least cost generation procurement

• Dartmouth Power Associates (FERC, 1990)

• San Diego Gas & Electric and incentives-based rates

Wholesale Restructuring1. PURPA

2. Market based wholesale rates

3. Energy Policy Act of 1992

• Clarified power to order third party wheeling and to specify that service be offered nondiscriminatorily (“comparability”).

QF IPP

Utility owned generator

Federal Power Project

Distribution System

Residential users

Commercial users

Industrial users

Municipal Utility

Residential users

Commercial users

Industrial users

EWG

Post Energy Policy Act of 1992: FERC may order third party wheeling

Toward Competition in Wholesale MarketsLate 1990s-present

Early 1990s

Wholesale generators began to enter market with exemption from FPA requirements, even without PURPA benefits. Didn’t need QF status to thrive.

FERC nudged transmission line owners to wheel power, and …

Number of cross-service area wholesale transactions increased. Transmission line owners began filing transmission service tariffs.

1996: FERC Order 888: Mandating Open-Access Transmission

Order 888

Purpose: to “ensure that all wholesale buyers and sellers of electric energy can obtain non-discriminatory transmission access . . .”

• How? By creating a continuous open system and eliminating use of monopoly power to discriminate

FERC Order 888 (1996)• All transmission line owners must:

• file “open access non-discriminatory transmission tariffs”

• provide transmission service for own wholesale sales on the same terms as provided in tariffs

• Encouraged formation ofEncouraged formation of ISOs. What are ISOs? Why encourage their creation?

Major Wholesale Electricity Trading Hubs

Post-Order 888/889

Drastic increase in wholesale salesDrastic increase in wholesale salesRise of power marketersRise of power marketers Increases in new IPP generationIncreases in new IPP generationYet no corresponding increase in

investment in transmission facilities

FERC Order 2000 (Jan. 2000)

Require owners of transmission to join/form Require owners of transmission to join/form RTO or explain why they are not doing so RTO or explain why they are not doing so (voluntary)(voluntary)

Does not mandate formation of RTODoes not mandate formation of RTOWhat is an RTO? How does it differ from What is an RTO? How does it differ from

an ISO? an ISO? Management and organization of RTOsManagement and organization of RTOs

Order 2000Order 2000 What requirements does FERC impose What requirements does FERC impose

on RTOs?on RTOs?Congestion management function by Congestion management function by

December 15, 2002December 15, 2002Parallel path flow coordination function Parallel path flow coordination function

by December 15, 2004by December 15, 2004Transmission planning and expansion Transmission planning and expansion

function by December 15, 2004function by December 15, 2004Other minimum functions will be Other minimum functions will be

implemented by startupimplemented by startup

Order 2000Order 2000If you owned transmission facilities, If you owned transmission facilities,

how would you respond to this how would you respond to this notice?notice?

Will the RTO idea increase in Will the RTO idea increase in investment in new transmission investment in new transmission capacity?capacity?

Status Report

10 years ago only a few companies were authorized (by 10 years ago only a few companies were authorized (by FERC) to sell wholesale power at market-based ratesFERC) to sell wholesale power at market-based rates

Now about 860 companies are eligible to sell wholesale Now about 860 companies are eligible to sell wholesale power at market-based ratespower at market-based rates

1998 Midwest price spikes 2000-01 California price spikes 2000-present: FERC pushing for 4 regional RTOs Energy Policy Act of 2005 and “national interest

transmission corridor” permitting June 2006: NOPR