Office of the Ohio Consumers' Counsel

Electric

Federal Electricity Issues

The Office of the Ohio Consumers’ Counsel (“OCC”), as part of its advocacy on behalf of residential customers, has become active in a number of federal issues because the Federal Energy Regulatory Commission (“FERC”) authorizes electricity charges that Ohio residential utility consumers must pay. The FERC’s jurisdiction includes wholesale markets, transmission, sales of electricity for resale, and regional transmission organizations (“RTO’s”). RTO’s were created less than 10 years ago to independently administer the nation’s electric transmission systems that were owned by the utility industry. These transmission lines carry the electricity from the generating source to the local distribution systems that serve consumers. Maintaining and improving this transmission system raises issues involving reasonable rates and reliability of service, with corresponding opportunities for OCC to advocate on behalf of Ohio consumers.

Regional Transmission Organizations

Ohio is served by RTO’s from two regions. PJM Interconnection L.L.C. (PJM) operates in thirteen states and the District of Columbia. Its membership includes American Electric Power’s two Ohio utilities and Dayton Power & Light. The Midwest ISO, Inc. (MISO) is comprised of fifteen states and the Province of Manitoba. Its membership includes FirstEnergy’s three Ohio utilities and Duke Energy. Because of this geographic split, the RTO’s must closely coordinate in order to effectively and efficiently operate the transmission grid in Ohio. The geographic split also requires the OCC to learn about and monitor two separate transmission operators in order to advocate effectively for consumers.

The RTO’s decisions can affect consumers’ rates through transmission charges, market costs for electricity, and delivery costs. In general, the RTO’s cannot levy charges for consumers to pay in retail rates unless the charges are authorized by FERC. OCC participates in cases at FERC and in the stakeholder processes at the RTO’s to advocate on behalf of Ohio’s residential consumers for reasonable rates and reliable electric service. OCC has also advocated at the federal level to promote the use of energy efficiency and demand response, preventing abuses of wholesale market power, and removing obstacles to wholesale competition.

PJM and MISO administer wholesale electric markets and market-related services. In wholesale electric markets, utilities (and others) buy and sell power to supply their customers. OCC’s efforts to reduce the wholesale cost of electricity by encouraging energy efficiency and demand response are first presented to the RTO’s through the stakeholder process, which includes committees and working groups. The voices and interests of consumers must be heard in this process, not just the voices and interests of transmission owners and power generators.

OCC participated in PJM’s policy discussions on incorporating energy efficiency and demand response in both capacity and energy markets, and in similar discussions at MISO. OCC also joined industry leaders in addressing the need for more long-term contracts for energy in wholesale markets. Efficiencies gained in the wholesale markets lower costs for residential customers by making the electric grid more efficient and by reducing the most costly electricity – electricity produced when customer use is at its peak each day.

Federal Energy Regulatory Commission (FERC)

FERC regulates transmission and the wholesale markets. These issues may be agreed-upon in the RTO stakeholder process, which can avoid litigation at FERC. In some cases, however, a settlement is not possible and the cases proceed to litigation. OCC has participated at FERC on matters that will impact costs and reliability for Ohio’s residential consumers.

Market Monitoring

FERC requires RTO’s to engage persons to serve as market monitors. These market monitors protect consumers by evaluating market behavior and by identifying and rectifying abuses of market power. The market monitor can benefit consumers by protecting the operation of markets so as to allow efficient prices and outcomes for electricity.

OCC was one of the lead complainants, along with a coalition of customer groups, which asked FERC to find that PJM was interfering with the independence of its market monitor, to the detriment of the public. The state regulatory commissions in the PJM region also filed a complaint and the cases were consolidated. The complaints followed a technical conference on market monitoring before FERC Commissioners, where the PJM market monitor testified that PJM interfered with his independent analyses and reports. Ultimately, the cases were partially settled. PJM agreed to provide the market monitor complete independence, and PJM removed the market monitor from PJM management supervision. Under the settlement, the market monitor is no longer an employee-at-will and the conditions upon which he can be rehired, terminated and replaced are defined. FERC has yet to decide the claims that PJM interfered with the market monitor. OCC considers the stronger market monitor to be an important step in protecting customers – including Ohio residential consumers.

Transmission Cost Allocation

OCC participated in several cases concerning FERC’s allocation of transmission costs to PJM members. Much of the proposed new transmission is for construction east of Ohio, where new transmission and generation are needed. In the past, new transmission costs were allocated on a “beneficiary pays” method. This minimizes costs to Ohio. This year, FERC changed the cost allocation from “beneficiary pays” to one where everyone must pay for new transmission systems 500 kV and above in size. Existing generation remains allocated on a “beneficiary pays” method, so Ohio now pays for all its existing transmission as well as for a portion of all new transmission, even if it serves areas other than Ohio. This significantly increases the cost to Ohio customers from PJM. OCC opposed this new allocation method and recommended an allocation that was fairer for Ohio customers.

In a related case, American Electric Power (AEP) filed a complaint, which alleged that transmission cost allocations for both MISO and PJM were unconstitutional and should be reversed. AEP claimed that all transmission – existing and new – should be allocated on a “beneficiary pays” basis. OCC also participated in this case, although FERC dismissed the case without convening any evidentiary proceedings.

Ancillary Services Market

The MISO market for electricity began in 2004. This year, MISO made great strides in making the regional market more efficient by expanding its responsibilities and by taking certain grid operations over from local utilities (“ancillary services market” or “ASM”). MISO will consolidate on a regional basis not only the dispatch of generating units, but also the monitoring and balancing of the electric grid to maintain the correct level of load and voltage. It will also determine which generating units must stand ready to produce electricity in times of operational emergencies. This is a major development in MISO’s new regional market and should provide consumers with more efficient systems and enhance grid reliability. In approving ASM, FERC wanted MISO to provide an objective test that the market monitor could use for detecting market power. FERC also instructed MISO to encourage demand response and to propose a method for measuring it. OCC agrees that these issues are essential for MISO to operate properly. MISO is complying with FERC’s requirements, and it will take over the ASM services no sooner than June 1, 2008.

PJM Demand Response

OCC has also been active at PJM in demand response issues. Demand response is the reduction of the use of (or demand for) electricity by customers. Demand response can reduce prices for all customers by reducing the demand for electricity. OCC intervened and expressed concern in a case where PJM eliminated certain payments for economic load response at the end of 2007 without implementing a replacement program. On a positive note, OCC was part of the PJM advisory group that convened high-level policy meetings to encourage greater demand response and to address the coordination of state and federal programs. At one meeting, the Consumers’ Counsel was a keynote speaker. OCC is encouraged by the progress, which will reduce wholesale electricity costs.

FERC Generic Proceedings

OCC also worked to protect the interests of Ohio consumers by participating in several proceedings at FERC that involved nation-wide issues affecting Ohio and other states. The proceedings included technical conferences on market monitoring in RTO’s, electric and natural gas coordination issues in times of gas shortages, and advanced rulemakings on competition in the electric wholesale markets.

Home Electric (Continued) Natural Gas