Electric Utility Restructuring
Briefing Book
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Transmission Issues

Amy Abel

FERC Orders 888 and 889 | FERC Order 2000

In addition to creating a new type of wholesale electricity generator, Exempt Wholesale Generators (EWGs), the Energy Policy Act (EPACT) provides EWGs with a system to assure transmission of their wholesale power to its purchaser. However, EPACT did not solve all of the issues relating to transmission access.

FERC Orders 888 and 889

On March 29, 1995, FERC issued a Notice of Proposed Rulemaking (NOPR) that proposed ending the utilities' transmission dominance to allow more competition in the generation sector (docket nos. RM95-8-000 and RM94-7-001).As a result of EPACT, on April 24, 1996, FERC issued Orders 888 and 889. In issuing its final rule, FERC concluded that these Orders will "remedy undue discrimination in transmission services in interstate commerce and provide an orderly and fair transition to competitive bulk power markets." Under Order 888, the Open Access Rule, transmission line owners are required to offer both point-to-point and network transmission services under comparable terms and conditions that they provide for themselves. The Rule provides a single tariff providing minimum conditions for both network and point-to-point services and the non-price terms and conditions for providing these services and ancillary services. This Rule also allows for full recovery of so-called stranded costs with those costs being paid by wholesale customers wishing to leave their current supply arrangements (see next section). The rule encourages but does not require creation of Independent System Operators (ISOs) to coordinate intercompany transmission of electricity.

Order 889, the Open Access Same-time Information System (OASIS) rule, establishes standards of conduct to ensure a level playing field. The Rule requires utilities to separate their wholesale power marketing and transmission operation functions, but does not require corporate unbundling or divestiture of assets. Utilities are still allowed to own transmission, distribution and generation facilities but must maintain separate books and records.

FERC estimates that Orders 888 and 889 will result in an annual cost savings of $3.8 to $5.4 billion. FERC also expects other non-quantifiable benefits, including better use of existing institutions and assets; technical innovation; and less rate distortion.

FERC Order 2000

On May 13, 1999 FERC issued a Notice of Proposed Rulemaking (NOPR, Docket No. RM99-2-000,) that described the minimum characteristics and functions of regional transmission organizations (RTOs). In FERC's NOPR, four primary characteristics and seven functions were described as essential for Commission approval of an RTO. The required characteristics were: the RTO must be independent from market participants; it must serve a region of sufficient size to permit the RTO to perform effectively; an RTO will be responsible for operational control; and it will be responsible for maintaining the short-term reliability of the grid. The required functions of an RTO outlined in the NOPR were: it must administer its own transmission tariff; it must ensure the development and operation of market mechanisms to manage congestion; it must address parallel flow issues both within and outside its region; it will serve as supplier of last resort for all ancillary services; it must administer an Open Access Same-Time Information System; it must monitor markets to identify design flaws and market power and propose appropriate remedial actions; and an RTO must plan necessary transmission additions and upgrades.

The proposed rule required every transmission owning utility regulated by FERC to file a regional transmission organization formation plan by October 15, 2000. Utilities already in some form of an RTO must file with FERC by January 15, 2001, to describe whether their transmission organization meets the criteria established in the RTO rulemaking. The proposed rule did not mandate RTO formation, but if an individual utility opts not to join an RTO, it was required to prove why it would be harmed by joining such an entity.

The final rule, Order 2000, was issued on December 20, 1999. The final rule is very similar to the NOPR: the rule does not require RTO participation, set out RTO boundaries, or mandate the acceptable RTO structure. RTOs will be able to file with FERC as an independent system operator (ISO), a for-profit transmission company (transco) or another type of entity that has not yet been proposed. Although RTO participation is voluntary under Order 2000, FERC built in guidelines and safeguards to ensure independent operation of the transmission grid. RTO's are required to conduct independent audits to ensure that owners do not exert undue influence over RTO operation. The final rule also adds one RTO function that was not included in the NOPR: interregional coordination. Six ISOs are already in operation and conditionally approved. Alliance is seeking approval to begin operation in December 2001.

On May 14, 1999, the United States Court of Appeals for the Eighth Circuit ruled in a case between FERC and Northern States Power. The court held that the Commission over stepped its authority when it ordered Northern States Power Company to treat wholesale customers the same as it treats native load customers in making electricity curtailment decisions. This decision raises federal-state jurisdictional questions, particularly a state's right to guarantee system reliability.

Overview of the U.S. Independent System Operators (ISOs)

  California ERCOT
Alliance RTO
(not yet operating)
New England New York PJM
Generation Capacity (GW)





Final Customers:
Number (millions)
10.0 6.8 11.0 6.2 6.2 9.5
Annual Sales (GW)





Lines (miles)






(square miles)






Initial Operating Date 1998 1996 2000 1997 1999 1998

Source: Public Utilities Fortnightly, February 15, 2000.

Page last updated October 19, 2000

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