2. Wholesale Restructuring 1.PURPA 2.Market based wholesale rates 3.Incentive rates 4.Energy Policy Act of 1992 Clarified power to order third party wheeling and to specify that service be offered nondiscriminatorily (comparability). Ad hoc orders: FP&L case PUHCA: EWGs and ownership issues

3. Toward Competition in Wholesale Markets Late 1990s-present 1980s and Early 1990s Wholesale generators began to enter market with exemption from FPA requirements, even without PURPA benefits. Didnt 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

4. 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

5. Order 888 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 provide real time information system for purchasing transmission service non- discriminatorily (OASIS-Order 889) transmission line owners may recover stranded costs through tariffs

6. Order 888 (contd) Encouraged formation of ISOs Sidestepped divestiture issue: required utility owners of lines not to treat in- house purchasers of transmission services differently from outside buyers. But didnt require formation of separate business units. Contemplates continued need for FERC to monitor for generation dominance

7. OASIS What is the purpose of this electronic system? Why does it merit its own separate FERC rule? (Order 889) OASIS standards of conduct for transmission service providers How does functional unbundling actually work in practice?

8. Order 888/889 and Grid Management Some IOUs transmission services controlled by power pools IOUs required to authorize power pools to submit tariffs and to operate consistent with Order No more bundled wholesale sales; must show separate product and service costs Growing wholesale markets increase need for technical grid management expertise (e.g. loop flows, safety, etc.)

9. Order 888/889 and ISOs What is an ISO? What is a transco? Whats the difference? How, if at all do ISOs and transcos differ from the old power pools? What services do ISOs and transcos provide? How are ISOs run?

10. Major Wholesale Electricity Trading Hubs

11. Post-Order 888/889 Drastic increase in wholesale sales Rise of power marketers Increases in new IPP generation Yet no corresponding increase in investment in transmission facilities

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

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

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

15. Originally Proposed RTOs

16. Status Report 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 1998 Midwest price spikes 2000-01 California price spikes 2001: FERC pushing for 4 regional RTOs

17. RTO/ISO Map: January 2003

18. Increased competition in power sales should trigger fall in wholesale price. Transmission bottlenecks and resulting price spikes have not triggered sufficient investment in transmission. Why? What is the solution to this problem? Who should control transmission siting decisions, in your view?