Grid operator consolidation proposal premature, New York ISO says

By Kate Thomas
OGJ Online Staff

HOUSTON, June 22 -- Officials at the New York Independent System Operator say they were "blindsided" by utility holding company Energy East Corp.'s proposal calling on the three grid operators serving the Northeast and mid-Atlantic to consolidate into a single entity.

Energy East, Albany, NY, which has operations throughout the region, said combining the New York ISO, PJM Interconnection LLC, and ISO England Inc. into a regional transmission organization (RTO) would create broader competitive markets.

The Northeast ISOs through a so-called memorandum of understanding have been working to improve regional reliability. Earlier this year, PJM and ISO New England agreed to a create a single market design, especially with respect to unit dispatch and reserve markets.

But Energy East through its New York State Electric & Gas Co. (NYSEG) subsidiary said the work isn't proceeding fast enough, communications with market participants isn't timely, and coordination isn't taking place.

Denis Wickham, Energy East's senior vice-president, transmission and supply, said it has become "crystal clear" a regional energy market with more suppliers and more consumers will improve market liquidity and enhance wholesale competition and the way to do that is through a single RTO.

Energy East is a larger electricity buyer and a large single market would help take some price volatility out of the system, said a spokesman.

But Ken Klapp, spokesman for the New York ISO, said the grid operator was "blindsided" by the proposal and believes it is premature to propose such a consolidation.

'Seams' won't just disappear
"I don't think we are ready to accept anything like that because we have filed documents with FERC [Federal Energy Regulatory Commission] to become an RTO," he said. "You can't assume a merger would just make the seams issue go away."

However, Klapp said, the ISO is willing to 'take a look" at other points Energy East raised to make the memorandum of understanding more effective. Presently, a group is working to upgrade the website to make information on the memorandum of understanding working groups available faster, he said.

During a FERC technical conference on RTOs earlier this week, New York ISO Pres. William J. Museler said the three ISO have given "seams" issues the highest priority since the memorandum of understanding was signed in 1999. Such issues range from differences in how the ISO dispatch power, reserve transmission, and price power, among a multitude of other issues.

At the same FERC conference, PJM CEO Phillip Harris illustrated the complexity of the seams issues, noting in the Eastern Interconnection alone it involved the interests of 44 state and provincial governments, 8 security councils, 18 security coordinators, and 104 control areas.

"The commission can eliminate many of these seams by approving several large RTOs, perhaps 10 or so in the Eastern Interconnection, reducing the number of conflicting views to those that remain to the borders of the RTOs," he said.

Varying interests bring different legacies of regulation, rules and procedures, and how market participants interact in their regions, he said. These range from years of cooperation as power pools to none at all, while some states are experimenting with retail competition and others are proceeding more cautiously, Harris observed.

He faulted FERC for creating some of the seams by approving some RTOs with market authority and others without. For example, while PJM has broad regional responsibility for planning transmission, FERC has not yet given the New York ISO comparable authority.

"Neighboring RTOs must be vested with compatible authorities, if they are to resolve seams issues," Harris said. The proposed standard market design between PJM and New England, he said, should go a "long way" to eliminating all seams between the two.

Harris said the fastest way to eliminate seams in the Northeast and create working markets will be for FERC to get all three Northeast RTOs up and running with independent and full authority "so we can continue to work on these and other market-based solutions, without continuing uncertainty hanging over the ISOs and their market participants."