# Presentation: 785926

## RTO West Update

*Will There be an RTO in the West and will BPA be part of an RTO?*
- Buying and Selling Electric Power in the West
- January 22, 2004

## Energy Policy Background

- FERC Orders 888 & 889 (1996)
- FERC relied on section 206 of Federal Power Act to order all jurisdictional utilities to file open access transmission tariffs to remedy undue discrimination and anti-competitive effects
- FERC Orders 888 & 889 (continued)
- Set guidelines for open access and industry restructuring (standards of conduct, functional separation & OASIS)
- Non-jurisdictional transmission providers (PMAs and publics) encouraged to adopt open access tariffs to obtain access to jurisdictional utility systems
- FERC Order 2000 (January 2000)
- Established required characteristics and functions of an RTO:
- Jurisdictional utilities required to file plans for participation in RTO or describe problems with participation
- 	Continued -

## Energy Policy Background

- The four characteristics include: independence from market participants; appropriate scope and geographical configuration; operational authority; short term-reliability
- The eight functions include: tariff administration and design; congestion management; parallel path flow mitigation; ancillary services provided; set up OASIS, TTC, and ATC (open access same-time information system, total and available transfer capability); market monitoring; planning and expansion; interregional coordination.

## RTO WEST BACKGROUND

- In response to Order 2000,  RTO West made two filings with FERC.
- Stage 1 filing:  October 23, 2000, asked FERC to act on  proposed characteristics 1 & 2:  independence and scope and regional configuration.  On April 26, 2001, FERC issued order indicating that with minor changes, these characteristics were met.  A very thorough set of proposed by-laws were included with the Stage 1 filing.
- Stage 2 filing: March 29, 2002 sought declaratory action on remaining characteristics and functions.
- Continued

## RTO WEST BACKGROUND

- On Stage 2 filing, FERC approved license plate pricing, 8-year company rate; congestion management proposal with some modification to use locational pricing and financial options to hedge congestion charges; catalogued transmission rights with voluntary contract conversion; planning and expansion proposal with some modifications; directed additional work on facilities to be included and provisions of the Transmission Operating Agreement that can’t be changed by the tariff.
- HOWEVER, while the RTO West filings and orders were proceeding fairly well on the development path ...

## STANDARD MARKET DESIGN

- On July 31, 2002, FERC issued its Standard Market Design Notice of Proposed Rule-making.
- This NOPR set out FERC’s expectations for a standard market design that it contended should apply to all regions of the country.
- Created a firestorm of opposition, within several regions, and in Congress.  Legislation introduced in 2003 to block FERC from implementing SMD until late 2006.  May be introduced again this year.
- In response to this firestorm, FERC issued a White Paper.

## FERC’S WHITE PAPER

- Entitled “White Paper   Wholesale Power Market Platform.” No mention of SMD in the White Paper
- FERC said it would focus on formation of RTOs and require public utilities to join an RTO or ISO
- Phased in implementation and sequencing tailored to each region allowed
- For any specific RTO, if it can be demonstrated that the costs of implementing any feature of the market platform outweighs its benefits, FERC will not require its implementation  (This is major shift)

## FERC’S WHITE PAPER

- Substantial deference to Pacific Northwest
- Acknowledged how essential BPA’s participation is to any Northwest RTO
- Re-affirmed that all decisions BPA must make regarding its obligations and operational responsibilities, irrigation, flood control, treaties, environmental rules are BPA’s NOT FERC’s.
- Regarding concerns over locational pricing, and a day-ahead market in hydro-dominated region, FERC said it would work with region and state commissions to solve

## FERC’S WHITE PAPER

- Regarding FERC/STATE roles:
- FERC would not assert jurisdiction over transmission rate component of bundled retail sales, but would over terms and conditions by requiring all RTO terms and conditions to apply equally to all users, including those users serving bundled retail service; allow state commissions to seek waivers on incompatible terms and conditions
- Create Regional State Committees (RSCs) that would have important responsibilities – cost responsibility – license plate or postage stamp, firm transmission rights, resource adequacy approach

## A NEW REGIONAL APPROACH 

- Following FERC’s April, 2003 White Paper, Northwest regional parties discussed how to proceed.
- State Commission representatives from states in the RTO West footprint (Washington, Oregon, Idaho, Montana, Utah, Nevada, and Wyoming) met with filing utility representatives and proposed reviving the Regional Representatives Group (RRG) process that had been used in Stages 1 and 2.
- State Commissions pledged to participate actively in this revived process.  A critical part of this new process.

## REVIVED RRG PROCESS

- In addition to representatives from the states, representatives from public power, independent power producers, renewable resources, environmental interests, end-use customers, the tribes, and the filing utilities have all participated starting in June 25 through December 2003
- A principal change in focus:
-  (1) ENSURE A SOLUTION FOCUSED ON REGIONAL NEEDS NOT A RESPONSE TO FEDERAL MANDATES
- (2) DEVELOP AND MAINTAIN BROAD REGIONAL CONSENSUS

## RRG ACCOMPLISHMENTS 

- The RRG itself has had a dozen all-day meetings during this 6-month period, and many days of work group meetings.
- Reached consensus on the regional problems, needs, and opportunities to improve that needed to be addressed.  A major step in moving forward.  Developed during August of last year.  All set out in the working documents posted at www.rtowest.com.  The problems and opportunities were keyed to the major elements of the transmission system.

## Major Elements of Transmission System

- Transmission Service
- Planning and Expansion
- Control Area Operations
- Energy Markets
- A/S—Capacity Related
- Market Monitoring
- Cost Recovery
- Regional ADR
- Regional Data Repository
- Coordination
- Governance of Independent Entity

## RRG Accomplishments cont’d 

- Based on problems and opportunities, consensus reached that status quo is not a realistic solution and that changes would be needed to the RTO West Stage 2 proposal
- RRG worked on three solution options:
- (1)	Coordination-based (done mostly by contract)
- (2)	Independent administrator
- (3)	RTO West reloaded
- None of these solutions, developed by those most committed to each approach, had broad regional support

## RRG Accomplishments cont’d

- There were common elements among them:
- 	1. Independent decision-making
- 	2. Single transmission plan with dispute resolution
- 	3. Being sure transmission plans result in building (backstop)
- 	4. Independent flow-based ATC calculation
- 	5. Preservation of existing rights
- 	6. Independent market monitor
- 	7. Voluntary inc/dec to clear congestion
- 	8. Enhanced short-term reliability
- 	9. Phased/staged implementation
- 	10.Options do not address resource adequacy

## RRG Accomplishments Cont’d

- Remaining issues include:
- 	1.	How will decisions be made to evolve from a beginning state
- 	2.	Control area consolidation
- 	3. 	Rate pancaking
- 	4.	Future financial rights
- 	5.	What ancillary services should the independent entity run
- 	6.	Transmission backstop authority for the IE

## RRG Accomplishments cont’d

- Getting to a regionally acceptable solution:
- 1. Set up work groups in October on convergence, governance, and congestion management
- 2. RRG then directed that a Platform Group be selected to develop a hybrid straw proposal which reported on November 19 and 20 to the RRG
- 3. A second draft of the hybrid proposal was discussed at the December 10 RRG meeting, posted on December 24.
- 4. This hybrid proposal utilizes elements of all 3 of the earlier options and focuses on solution to governance
- 5.  This regional proposal received favorable response from nearly all RRG members as providing a sound basis for further work.

## Regional Proposal Key Elements

- 1.	Creation of an independent entity to manage the region’s grid
- 2.	Staged implementation (beginning, interim, and target end-state)
- 3.	Voluntary features (e.g. day-ahead inc/dec market, control area consolidation)
- 4.	Regional accountability via advisory committees, trustee selection committee with veto rights, and key bylaws provisions.

## Regional Proposal - Staging

- STAGING is key to this proposal.  It sets out a beginning state, an interim state, and an advanced target state.
- Because of the tension between those who want certainty regarding the “end state” and those who do not want a “forced march” to outcomes, three criteria were developed for the stages of the proposal:
- 1.	Beginning state should be an improvement over the existing situation and respond to RRG identified problems
- 2.     Each stage should be workable itself.
- 3.     Each stage should allow further evolution and not lock in to intermediate states.

## Regional Proposal – Accountability

- Election to Board of Trustees of Independent Entity requires 24 of 30 trustees on Trustee Selection Committee. Trustee elected by the members.  Board removal by 20 of 30 trusteets
- Formation of Government Advisory Committee in addition to Stakeholder Advisory Committee.  Mandatory consultation
- TSC veto process for 5 special issues: chronic congestion backstop; move to financial rights; departure from company rates; authorization for market monitor to impose penalties; and authorization for IE to adopt loss methodology that overrides individual company loss methodologies.  If TSC opposes (by 16 plus one class or 20 trustees) supermajority of Board (7 of 9) to proceed on special issue.
- Guiding principles used by platform group to guide Board
- Transmission owner withdrawal rights
- Members remedies to enforce compliance with bylaws

## REGIONAL PROPOSAL

- Other guiding principles:
- 1.	All existing contracts, settlements, and other relevant obligations are expected to be honored according to their terms
- 2.	Transmission owners are still in charge of their company rates, subject to applicable regulatory authority
- 3.	Cost shifts should be minimized

## Bonneville Power Administration

- BPA is “supportive of the platform and believes it is a big step forward in getting broad regional support.”
- It is an evolutionary approach, with a more modest beginning state and lower cost, but allows for additions to occur as needed and that can be tailored to the needs of the Northwest.
- The new governance provisions (e.g. state advisory committee and TSC veto process) provide the added assurance that the IE will be responsive to regional needs.
- Successful implementation of the platform can improve the efficiency and reliability of the regional grid, help get needed infrastructure built and provide a better functioning market with less abuse and gaming.

## Next Steps

- RRG directed a process “fill in the gaps, build on the platform, and get to closure”)
- 2.	Over next two weeks, identify a process and timetable for further work to build on the regional proposal.  (Being worked on right now by the RRG Process Group.)
- Work on defining beginning state more clearly
- Work on state and federal approval processes
- Explore funding options
- Consider when to seat Board

## Sources for Further Information

- Attendance at January 28 meeting of the RRG at Shilo Inn, Portland Airport Hotel where Process Group reports.
- www.rtowest.com
- Narrative Description of RRG Platform Group Proposal
*	**Posted December 8, 2003*
- A Regional Consensus Transmission Proposal
*	**Posted January 8, 2004*
- The Region’s Transmission Solution
*	**Platform Group Draft, January 14, 2004*