Kate Thomas
OGJ Online
HOUSTON, Jan. 23 -- PJM's decision to link up with the Midwest Independent Transmission System Operator Inc., instead of New York and New England, caught some industry participants off guard and raises questions about the federal government's response.
PJM Interconnection LLC, the grid operator for the mid-Atlantic states, and the newly formed Midwest ISO agreed in principal Monday to form a single market for electricity that will encompass 27 Midwest and mid-Atlantic states, the District of Columbia, and the Canadian province of Manitoba.
The proposal seems to fly in the face of the Federal Energy Regulatory Commission's vision of four large regional transmission organizations, said John Anderson, executive director of the Electricity Consumers Resource Council (ELCON), which represents industrial power users. He also said the agreement raises questions about the proposed Alliance RTO, which FERC sent back to the drawing board in December.
"I was very surprised," Anderson said of the announcement. "I don't think it makes electrical sense. It may make political sense. To me the question is, What is FERC going to do?"
In July the commission ordered PJM, ISO New England, and the New York Independent System Operator to begin mediation on forming regional super RTO. Since that time both New England and New York have protested various provisions of a proposed combination, especially the dominant role PJM insisted on having in the resulting organization.
"Giving PJM absolute control would be unlawful, deprive the board of legitimacy, and provoke protracted judicial challenges," the New York ISO said in comments on the proposal last summer.
"There haven't been any discussions with PJM for awhile on the RTO," said New York ISO spokeswoman Carol Murphy. "But there have been ongoing discussions with New England." Some sources said they expected an announcement later this week by the New York grid operator.
PJM spokeswoman Beth Foley said the alliance with the Midwest ISO represents a opportunity to participate in a larger market, but she declined to say how the mid-Atlantic grid operator expects federal regulators to respond to the proposal.
ELCON's Anderson noted the organizations haven't proposed a merger but an operating agreement. "I haven't seen that work," he said. PJM said the single energy market will be administered by two separate organizations. Some functions will be done jointly and others individually. The two grid operators will establish a joint stakeholder market committee to develop the new market design.
FERC approved the Midwest ISO as the first official RTO in the country in December, but denied the same status to the Alliance RTO, finding that Alliance lacked sufficient scope to exist as a stand-alone RTO.
The order basically overturned a previous decision that the Alliance companies' proposal had sufficient scope to become a stand-alone RTO. Alliance was directed to explore, along with its designated 'Managing Member,' National Grid PLC, options for joining the Midwest RTO.
The Midwest RTO, a nonprofit based in central Indiana, will operate in some 20 states and the Canadian province of Manitoba. When merged with the Southwest Power Pool, it will stretch from Manitoba to New Mexico. The Alliance companies cover parts of 11 states from Missouri to North Carolina. FERC said Midwest may begin operating as an RTO as soon as possible, although it still must make some additional filings.
FERC said the Midwest RTO best satisfied the four conditions of independence, scope, congestion management, and market monitoring. Allowing two RTOs to operate in the Midwest would be a "second-best" solution that would compromise customers' interest, the commission said.