WASHINGTON, D.C., Oct. 10, 2001 – Getting transmission “right” is the key to building an effective, competitive wholesale market, and expansion of the grid is critical to making the interstate transmission system more robust and efficient, FMPA General Manager and CEO Roger Fontes said today before a House Energy and Commerce Subcommittee on Energy and Air Quality hearing on electricity transmission issues.

“It is widely recognized that our current transmission system is weak and highly constrained,” said Fontes, speaking on behalf of the American Public Power Association, the national service organization representing the nation’s more than 2,000 community and state-owned electric utilities. “The weaknesses of the grid not only threaten reliability, they undermine our ability to achieve robust competition. Competitive wholesale markets simply cannot work unless numerous competitors are able to deliver their product to buyers.”

Fontes offered subcommittee members four recommendations to get transmission “right”:

Reform the balkanized, state-by-state transmission process, including efforts that would allow for federal eminent domain to be used after appropriate consultation and cooperation with state and local governments; Stop looking to entities that own both generation and transmission to build new transmission facilities, and steer clear of incentive pricing, which will unnecessarily increase electricity costs for consumers;
Grant the Federal Energy Regulatory Commission (FERC) authority to establish large, rationally-scoped and truly independent Regional Transmission Organizations with full authority to plan and expand the regional transmission system; and Ensure that RTOs fully compensate all transmission owners for their investment in transmission facilities turned over to the RTOs.

RTOs should be specifically authorized in legislation to build transmission or bid out passive ownership, Fontes advised the subcommittee. Currently, many of those being formed are not permitted to construct transmission lines themselves, which gives tremendous leverage to existing vertically-integrated transmission owners to build while seeking rate incentives to do so.

APPA supports the North American Electric Reliability Council’s consensus proposal and concurs with NERC’s suggestions to change Title III, Section 301, of Subcommittee Chairman Joe Barton’s draft bill in order to explicitly require electric utilities to comply with reliability standards and practices, Fontes said.

On other issues, Fontes emphasized APPA support for:

The principle of local control, while recognizing that some limited jurisdiction over public power transmission facilities would be acceptable, such as that contemplated in Chairman Barton’s restructuring bill (H.R. 2944) from the 106th Congress. Dubbed “FERC-lite,” this concept would extend partial FERC jurisdiction to public, cooperative and federal utilities with transmission facilities interconnected to the national grid to ensure comparability of service. FERC would not be given transmission rate-setting authority for these transmitting utilities, but would determine only whether rates to others are comparable to those utilities charge themselves, remanding the issue back to the utilities if deemed necessary. However, APPA said it could not support the heavy regulation proposed by Rep. Barton in his draft bill that would allow FERC authority to order refunds by public power systems.

FERC authority to establish and require public utility (investor-owned utility) participation in strong, truly independent RTOs, as well as accommodating the unique characteristics and legal requirements of public power to ensure public power’s participation is not inconsistent with state laws and constitutional requirement, or bond covenants. FERC authority to order public power systems to join an RTO should be limited to situations in which FERC finds a utility has engaged in undue discrimination in the provision of transmission service or abused its control, or that the FERC open access transmission tariff will not remedy the problem. Then, FERC could require the public power utility to surrender control of its transmission to an independent RTO that meets FERC RTO criteria, Fontes suggested.