Energy Legal Blog

FERC Strives to Make the Costs of RTO Membership Transparent

Responding to complaints that the cost of joining an RTO or ISO  is too high or unknown, on December 15 FERC issued Order No. 668, which will revise its Uniform System of Accounts and financial reporting requirements as they are used to publish the capital and operating costs of RTOs/ISOs and the cost to public utilities of  RTO/ISO membership.  In a statement, FERC Chair Joseph Kelliher promised that the rule "will make RTO costs more transparent and enable a cost comparison among RTOs, as well as between RTOs and traditional public utilities" transmission operations.  He also vowed to take additional steps if needed to achieve greater transparency.  The new rule joins other recent FERC proceedings intended to make RTOs and independent transmission organizations more palatable to utilities and their customers.  See Rule Would Encourage Transmission Investment & Membership in Transcos & Transmission Organizations.

The increased disclosure of expenses required by Order No. 668 is aimed at helping regulators ascertain a utility's RTO costs and determine whether they are excessive.  One of the primary criticisms of RTOs has been that the associated costs are too high or are not transparent.  These concerns have prompted some utilities to pull out of existing RTOs/ISOs.  See We Gotta Get Out of this Place: LG&E and KU Ask to Leave MISO.   FERC Commissioner Nora Brownell approached the issue from a different perspective, however, when she suggested that if RTOs/ISOs are taking on increasing responsibility for transmission grid and wholesale market operations, then the question might not be why are their costs increasing, but rather why aren't the costs of traditional utilities decreasing since the RTO or ISO is performing operations that they formerly did.

Order No. 668 establishes new capital and operating expense accounts to record what RTOs/ISOs bill their members and a separate accounts for expenses incurred in managing and monitoring regional market activity.  The new rule also provides for the recording of regional transmission and market operations, as well as new schedules for quarterly and annual financial reports for reporting revenues collected by RTOs.  The rule also provides utilities with several new sub-accounts, including three sub-accounts in which to record their share of costs billed to them by RTOs and a new revenue sub-account to record revenue received for providing transmission services.    The amended regulations will become final 30 days after publication in the Federal Register, likely sometime in late January or early February, and the accounting and financial reporting changes and updates will become effective on January 1, 2006.  [Docket No. RM04-12]