Restructuring: The Effects of FERC Orders 888, 889, and 2000

To understand the current constraints on transmission infrastructure, it is necessary to describe state and federal electric industry restructuring efforts. At a fundamental level, “restructuring” essentially means increasing generation competition through market-based rates and unbundling the generation and transmission functions of vertically-integrated utilities.[1] PURPA and EPAct 1992 laid the groundwork for these policies, and subsequent regulatory and congressional efforts propelled them forward.

1. FERC Orders 888 and 889

FERC Orders 888 and 889 played an instrumental role in opening up the U.S. electricity system to generator competition and wider transmission access.[2] By the mid 1990’s it had become well known that vertically-integrated utilities[3]—the owners of most of the transmission lines in the U.S.—were stifling competition and letting excess grid capacity go unused.[4] FERC initially encouraged utilities to grant transmission service requests on a case-by-case basis.[5] Utilities responded with delay and reluctance, and in some cases, with discriminatory service, terms, and conditions.[6] Eventually the Commission initiated rulemakings and Orders 888 and 889 resulted: the former requiring that utilities unbundle their generation functions and provide open access to their transmission facilities,[7] and the latter establishing the Open Access Same-Time Information System (OASIS) and setting standards for how utilities and customers would come to share information about the transmission system.[8] These Orders and the concept of “open access” have since become deeply engrained in the regulatory framework.[9]

These Orders also encouraged the creation of Independent System Operators (ISOs) and Regional Transmission Organizations (RTOs)—entities that now manage most of the power transfers in the eastern interconnection and California. FERC recognized the difficulty in ensuring non-discriminatory open access to the transmission system when single companies often owned both electricity generation and transmission facilities, and it saw ISOs (and eventually RTOs) as a way of interposing an independent grid manager that could avoid such conflicts.[10] The Commission eventually approved ISO applications for the mid-Atlantic region, California, New England, the Midwest, New York, and Texas.[11] Non-ISO/RTO regions, like the Pacific Northwest, responded to Orders 888 and 889 by amending their own state statutes to require utilities to functionally unbundle their generation, transmission, and distribution functions.[12]

2. Order 2000

FERC issued Order 2000 on December 20, 1999, hoping to continue the industry-wide momentum toward restructuring and open access that first started with its earlier Orders.[13] Like ISOs, RTOs encourage competitive generation markets by bringing all transmission control under independent entity’s management.[14] However, in the Order 2000 rulemaking, the Commission wanted to correct some of the design faults inherent in the ISO structure.[15] The Commission realized that while “ISOs had the potential to provide significant benefits,…a less intrusive functional unbundling approach”—and a shift toward regional cooperation—would better serve the end open access goals of Order 888.[16]

Orders 888, 889, 2000, led to the creation of the California ISO, New York ISO, and the Electric Reliability Council of Texas. Four RTOs have also been established: PJM Interconnection, ISO New England, Midwest ISO, and the Southwestern Power Pool.[17] Despite FERC’s stated goal that “all transmission-owning entities… place their transmission facilities under the control of RTOs in a timely manner,”[18] much of the country’s electricity transmission infrastructure—especially in most of the western interconnection—remains outside the control of an independent operator.

The Grid and its Woes

Statutory and Regulatory Development

The Energy Policy Act of 2005 and FERC Order 890

FERC Order 1000 (forthcoming)

 


[1]  Joseph P. Tomain, The Past and Future of Electricity Regulation, 32 Envtl. L. 435, 469 (2002).

[3] The term “vertically integrated” in this context refers to electric utilities that “own and control generation, transmission, and distribution facilities in or near their distribution franchise areas.” Id. at 3.

[4] See id. at 18–19. See also Order 888 at 50 (“Transmitting utilities own the transportation system over which bulk power competition occurs and transmission service continues to be a natural monopoly.”).

[5] Joskow, supra note 2, at 18–19.

[6] Id.

[7] Id. at 21.

[8] Id. at 22–23.

[9] Id. at 20 (“[T]hese rules now serve as the primary federal foundation for the obligations imposed on transmission owners to provide to third parties unbundled transmission service, ancillary network support services, and information about the availability of these services to support both wholesale and retail competition.”). For further discussion of Orders 888, 889, and 200 see generally id. at 18–31.

[10] Order 888, supra note 29, at ¶ 31,652 (noting the “great potential [of ISOs] to assist us and the industry to help provide regional efficiencies, to facilitate economically efficient pricing, and, especially in the context of power pools, to remedy undue discrimination and mitigate market power.”). See also Michael A. Yuffee et al., Introduction: What is an RTO/ISO?, in 4-89 Energy Law and Transactions § 89.01.

[11] Id. § 89.01.

[12] Id.

[13] Order 2000, Regional Transmission Organizations, [Regs. Preambles 1996-2000] FERC STATS. & REGS. 31,089, at p. 30,995 (2000), 65 Fed. Reg. 809 (2000) (codified at 18 C.F.R. pt. 35).

[14] Id. at ¶ 31,033.

[15] For further discussion about the problems inherent in the ISO model, as well as examples of how these problems manifested themselves in California, the Midwest, and New York, see Energy Law and Transactions, supra note 10, at § 89.06.

[16] Order 2000, supra 112, at ¶ 30,996.

[17] Energy Law and Transactions, supra note 10, at § 89.01.

[18] Order 2000, supra 112, at ¶ 31,033.

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