posted on Thursday, July 21, 2005 7:00 PM by Andrea Robinson

Open-Access Transmission Redux as New FERC Chair Jettisons Controversial Standard Market Design Championed by His Predecessor

In his new capacity as Chair of FERC, Joseph Kelliher has made good on his commitment to improving the existing open-access transmission rules that the agency adopted nearly ten years ago.  In particular, with Kelliher at the helm, FERC appears committed to strengthening the anti-discrimination protections of existing regulation of interstate power transmission.  At the same time, under Kelliher’s leadership, FERC formally interred the Standard Market Design (SMD) Rulemaking proceeding that his predecessor Pat Wood rolled out on Wall Street three years ago, see Special Update (7/31/02), but promptly abandoned after it encountered fierce opposition from utilities in the Northwest and Southeast.   Ironically, neo open-access transmission will likely pursue many of the same transmission goals that SMD sought to achieve and may prove in many respects to be SMD by another name.

First proposed in July 2002, SMD was grounded in the operational separation of power generation from transmission and the operation of the high voltage grid.  The SMD grid operator would be a new Independent Transmission Provider or ITP that, in addition to scheduling uses of the grid, would operate day-ahead and real-time spot markets for energy and ancillary services.  Because all uses of the grid would be subject to the same rules, SMD was rightly viewed as a threat to traditional practices that allowed utilities to prioritize certain transmissions over others irrespective of the customer’s willingness to pay.  Opposition persisted and was never assuaged by a 2003 FERC White Paper that sought to make SMD more palatable by watering down its strict independence and anti-discrimination provision.  SMD had long been a dead letter when, on July 19, 2005, FERC formally terminated the SMD proceeding.  SMD, FERC explained, had been overtaken by the industry's voluntary development independent operators — regional transmission organizations (“RTOs”) and independent system operators (“ISOs”). 

For customers located in areas not regulated by RTOs or ISOs, the open-access transmission tariff  or OATT that FERC adopted in 1996 is the primary and only protection against unfair or unduly discriminatory rules and practices for accessing the transmission grid.  But the OATT, in Kelliher’s view is inadequate for the job.  In particular, Kelliher has pointed to its failure to provide transmission customers with a reciprocal ability to initiate penalties for transmission owners for OATT violations, as well as its inconsistency regarding the appropriate method for calculating available transmission capacity.  How the agency under Kelliher will address these deficiencies and produce a new and improved OATT will play out in coming months. Also remaining to be seen is whether FERC's reassessment of its open-access rules and the OATT will also result in more vigorous enforcement of those rules in the near term.  (Docket No. RM01-12-000) [Update]