Utility owned generator Federal Power Project Distribution System Residential users Commercial users Industrial users Municipal Utility Residential users Commercial users Industrial users Pre-PURPA Otter Tail (1973)

Wholesale Restructuring: Initial steps : PURPA s-present: Rate experiments : Energy Policy Act : Order : Order 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?

QFIPP 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 Restructuring 1.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 Restructuring 1.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 Restructuring 1.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 Restructuring 1.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”).

QFIPP 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 Markets Late 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 sales Drastic increase in wholesale sales Rise of power marketers Rise of power marketers Increases in new IPP generation Increases in new IPP generation Yet no corresponding increase in investment in transmission facilities

FERC Order 2000 (Jan. 2000) Require owners of transmission to join/form RTO or explain why they are not doing so (voluntary) Require owners of transmission to join/form RTO or explain why they are not doing so (voluntary) Does not mandate formation of RTO Does not mandate formation of RTO What is an RTO? How does it differ from an ISO? What is an RTO? How does it differ from an ISO? Management and organization of RTOs Management and organization of RTOs

Order 2000 What requirements does FERC impose on RTOs? What requirements does FERC impose on RTOs? Congestion management function by December 15, 2002 Congestion management function by December 15, 2002 Parallel path flow coordination function by December 15, 2004 Parallel path flow coordination function by December 15, 2004 Transmission planning and expansion function by December 15, 2004 Transmission planning and expansion function by December 15, 2004 Other minimum functions will be implemented by startup Other minimum functions will be implemented by startup

Order 2000 If you owned transmission facilities, how would you respond to this notice? If you owned transmission facilities, how would you respond to this notice? Will the RTO idea increase in investment in new transmission capacity? Will the RTO idea increase in investment in new transmission capacity?

Status Report 10 years ago only a few companies were authorized (by FERC) to sell wholesale power at market-based rates 10 years ago only a few companies were authorized (by FERC) to sell wholesale power at market-based rates Now about 860 companies are eligible to sell wholesale power at market-based rates Now about 860 companies are eligible to sell wholesale power at market-based rates 1998 Midwest price spikes 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