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FERC Order 2000 Summary

FERC Order 2000 Summary. March, 2000. Overview. Summary of deregulation activities Discussion of Order 2000 Prediction of how the Southeast will react What this means to you. Electric Utility Deregulation. Retail-State PSC jurisdiction Wholesale- Federal FERC jurisdiction.

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FERC Order 2000 Summary

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  1. FERC Order 2000Summary March, 2000

  2. Overview • Summary of deregulation activities • Discussion of Order 2000 • Prediction of how the Southeast will react • What this means to you

  3. Electric Utility Deregulation • Retail-State PSC jurisdiction • Wholesale- Federal FERC jurisdiction

  4. Status of State Electric Deregulation Retail market open now Retail market will open full or partial in late 99 or early 00 Law or commission order passed, but market not yet open Commission or legislative activity No significant activity

  5. FERC has been working on wholesale deregulation for some time • PURPA 1978 • Energy Policy Act of 1992 • Order 888 -1996 • Order 2000

  6. Commission Approach to RTO Formation • Encourages transmission owners to participate in RTO’s voluntarily • Mandates transmission owners to participate in collaborative process • Neutral to RTO organization or structure • Provides flexibility as to how RTO meets minimum characteristics and functions

  7. ISO No asset ownership (present TO’s continue to own assets) Functional transmission operation only TO’s maintain tariff for zonal revenue requirements Coordinates planning Transco Owns transmission assets Performs physical transmission operations May or may not retain zonal tariffs Performs planning with input from customers Operates NERC control area RTO Options

  8. Four minimum characteristics of an RTO • Independence from market participants • Appropriate scope and regional configuration • Possession of operational authority for all transmission facilities under the RTO's control • Exclusive authority to maintain short-term reliability.

  9. Independence from market participants • The commission states that independence is the “bedrock” requirement of an RTO • Order 2000 allows market participants, under certain conditions, to maintain an active or passive ownership in an RTO • Passive owners may exert no influence over RTO operation. Passive ownership has no sunset provisions but audits are required • For a five year transition period, Order 2000 allows active ownership up to 5% with no market participant class owning more than 15%

  10. Appropriate scope and regional configuration • Desirable features: • One contiguous geographic area • Recognized trading patterns • Encompass existing control areas • Take into account existing NERC regional boundaries • Do not create barriers between existing markets

  11. Short Term Reliability • The RTO must be the Security Coordinator for the region • The RTO must have exclusive authority for performing or directing interchange scheduling • The RTO must have the right to order redispatch of any generation for reliable operation of the grid • The Order does not require that the RTO establish transmission facilities ratings • The RTO has authority over transmission maintenance scheduling

  12. In Addition, There Are Eight Functions That an RTO Must Perform • Administer its own tariff and price transmission to promote efficient use and expansion of transmission and generation facilities; • Create market mechanisms to manage transmission congestion; • Develop and implement procedures to address parallel path flow issues • Serve as a supplier of last resort for all ancillary services • Operate a single OASIS site for all transmission facilities under its control with responsibility for independently calculating TTC and ATC • Monitor markets to identify design flaws and market power • Plan and coordinate necessary transmission additions and upgrades • Provide interregional coordination

  13. Tariff Administration • The RTO will be the sole provider of transmission service and the sole administrator of its own OATT • Under an ISO structure the transmission owner retains Section 205 filing rights with respect to its level of revenue requirements • The rate in the RTO tariff is calculated based upon of the transmission owner tariff components and the RTO’s own administrative and start up costs

  14. Congestion Management • FERC believes that the RTO or independent market operator must operate a market mechanism to price congestion • The market must establish clear transmission rights • The market must provide price signals that reflect congestion and expansion costs • Order implicitly encourages locational marginal pricing for congestion management • The RTO must implement the market mechanism within one year after start up

  15. Ancillary Services • The RTO is the supplier of last resort • The RTO must ensure that its customers have access to a real time energy balancing market • Control area operators must clear system imbalances through this market • The structure and operation of such a market is not at all clear ? Inadvertent? Power pool? Power exchange? Load following? Regulation? Imbalance?

  16. Planning and Expansion • Public utilities are not relieved of their obligation under the OATT to upgrade or expand facilities upon the request of the RTO or transmission customers • Each RTO shall have the authority to direct or arrange for the construction of facilities

  17. Interregional Coordination • The RTO must develop mechanisms to coordinate activities with other regions whether or not an RTO yet exists in those other regions • FERC feels this takes pressure off getting regions exactly right initially

  18. Rate Making Policies for RTO’s • Multiple access charges are not allowed • The RTO may propose rates for transmission customers in the region that own transmission but choose not to participate in the RTO

  19. Transmission Pricing Reform • Formula rate to determine ROE • maintain return on invested capital while varying capital structure (leveraging)

  20. Transmission Pricing Reform • Levelized rates • Incremental Pricing • FERC will consider proposals that combine elements of incremental pricing of new facilities with embedded cost access fees for existing facilities(“AND” pricing) • Accelerated depreciation for new facilities will be considered

  21. Effect on States with Low Cost Generation • FERC does not expect that regions with no existing regional infrastructure will invest in new, high cost systems. • Such regions may propose an RTO that relies on existing infrastructure

  22. Order 2000 Application • FERC acknowledges that it intends to create a new order of voluntary transmission entities called RTO’s through rate inducements. Application of Order will test FERC’s offer • FERC acknowledges that transmission owners may make other filings consistent with the Federal Power Act which may not qualify as RTO’s, that such proposals will not be summarily rejected and that these may be an improvement over the status quo • Election 2000 and new Commission may change application of Order

  23. Order 2000 Time Line • All transmission owners must participate in at least one two day regional workshop during Spring, 2000 • Philadelphia --Kansas City • Cincinnati --Las Vegas • Atlanta (April 6-7) • October 15, 2000-- Transmission owners must file with the Commission either (1) a proposal to participate in an RTO or (2) an alternative filing describing efforts to participate in an RTO, obstacles encountered, and any plans and timetables for future efforts. • December 15, 2001--RTO’s are expected to be operational

  24. Approved ISO’s California New York PJM New England Midwest MAPP MAIN ECAR ERCOT Pending RTO’s Alliance Entergy Eastern Maine RTO Discussions Florida Desert Star Rocky Mountain No RTO Discussions Northwest Southeast ISO’s and Transco’s to Date

  25. General Conclusions • Order 2000 will not diminish the role of System Operations in a region • Early reaction has been more control areas not fewer • Energy balancing remains a HUGE ? • Balancing reliability and commercial interests will become even more delicate at the policy level and in day to day operations

  26. How will the Southeast React? • Will form an RTO to be in service in 2002 • Priorities will be elimination of pancaked rates and develop a charge for wheel throughs and outs • Multiple control areas will continue and grow in number • Some system control functions will be transferred to the RTO • OASIS, transmission reservations, security coordination, ATC calculation

  27. How will the Southeast React? • Other System Control functions and RTO mirror functions will remain at both generation and load serving companies to interface with the RTO • Planning activities at transmission owning companies will increase to interface with the RTO • As the result of the mirror functions and the addition of the RTO to the transmission scheduling process, the cost of transmission service will rise.

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