FERC Federal Energy Regulatory C ommission May 30, 2002 Inter-RTO charges and RTO Membership decisions

FERC 2 Problem Inter-RTO charges may create an incentive to join less contiguous RTOs The well-known risk of “swiss cheese” configuration is becoming a “marble cheese” of swirled together systems that would threaten efficient, reliable operation.

FERC 3 Inter-RTO charges RTO “A” RTO “B” G = 110 GW L = 100 GW G = 90 GW L = 100 GW 10 GW How should the transmission from “A” to “B” be paid for?

FERC 4 Recovery of the Transmission Cost B could pay A’s transmission: –Per transaction (access or other charge) –No charge for the transfer (A’s load would pay) –No charge but annual true-up

FERC 5 Pricing to Ensure Natural Markets SMD pricing policy would consider impact of transmission rates on decisions to join RTOs Would prefer choice be driven by natural markets and reliability, not rates and charges

FERC 6 Result to Avoid Choice of RTO driven by transaction fees— Utility choosing a distant RTO to avoid charge RTO A RTO B

FERC 7 Order 2000 RTO boundary criteria Facilitate RTO functions Encompass one contiguous geographic area Encompass a highly interconnected grid Deter exercise of market power Recognize trading patterns

FERC 8 RTO criteria, cont’d Take into account existing boundaries (ie NERC) Encompass existing regional entities Encompass existing control areas Take into account international boundaries