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< E-Notes provides regular briefings on new developments in global energy < and public utility law. < < < November 20, 2001 < < FERC OFFERS FURTHER GUIDANCE ON RTOs < < Earlier this month, the Federal Energy Regulatory Commission ("FERC" or < "Commission") issued an Order Providing Guidance on Continued Processing < of RTO Filings ("RTO Guidance Order"). This order was issued by the FERC < in response to the RTO development efforts in the United States and < comments received by the Commission at the public conferences held at the < FERC from October 15 through 19, 2001, the open Commission meeting on < October 24, 2001, and the Western Regional Infrastructure Workshop in < Seattle, Washington on November 1-2, 2001. < < Elements of RTO Development < < The RTO Guidance Order states that further development and eventual < completion of the RTO process will occur along two parallel tracks before < the Commission. One track will address scope and governance issues < through the pending RTO dockets following consultation with state < commissioners. The other track will address business and process issues < through the transmission tariff and market design rulemaking in Docket No. < RM01-12-000. The RTO Guidance Order also provided important details < concerning key elements of the RTO development process. < < Specifically, the Commission will: < < * issue a Notice of Proposed Rulemaking ("NOPR") on terms and < conditions of interconnection services during January 2002 and a separate < NOPR on interconnection pricing issues by April 2002. < < * use the pending RTO dockets to address current and future < proposals for fulfilling the eight Order No. 2000 RTO Functions, including < the numerous business models proposed for the administration of critical < wholesale market operations; < < * create state-federal RTO panels to promote dialogue on RTO < development between the Commission and state commissions; < < * actively seek advice from state commissioners concerning the < composition of regional markets; < < * meet with investor representatives to better understand the < financing of independent transmission companies and transmission < construction; < < * perform addition cost-benefit analyses on RTOs to guide its < efforts and to provide a quantitative basis for the appropriate number of < RTOs. < < New Policy Shift < < The Commission has officially abandoned its December 15, 2001 deadline for < RTO operation and will instead issue orders addressing pending RTO filings < only after receiving comments from the appropriate state regional panels. < Future RTO progress in each region will be governed by timelines to be < established in future Commission orders. RTOs will be based on a sound < business plan with substantive buy-in from a cross-section of market < participants. With respect to the West, the RTO Guidance Order commented < favorably upon the development of three Western sub-regional organizations < bound by a workable seams agreement and operating under a larger umbrella < organization. < < The terms of the RTO Guidance Order reflect the Commission's reaction to < the drastic changes occurring in the electric power industry since the < issuance of Order No. 2000 in December 1999. The cumulative and ongoing < effects of the California crisis (including PG&E's bankruptcy and the < bitter El Paso Natural Gas Company litigation), uncertainties in gas and < power trading markets, and the business and regulatory factors underlying < the tremendous disparity in levels of RTO development have influenced (and < will continue to influence) Commission activity in this area. In stark < opposition to the mandates of the past summer, the RTO Guidance Order < depicts a Commission committed to pragmatic, cautious implementation of < strategy devised through cooperation and collaboration with the states and < industry. < < Future Commission action in RTO development will likely: (1) reflect < conclusions reached through consensus and development that will increase < the likelihood of substantive success and, importantly, more broadly < disperse the political risk; and (2) emphasize increased market < transparency to mitigate the volatility that has drastically shortened the < time window for business failure in the electric power industry from a < matter of years to a matter of weeks. The Commission will likely continue < to investigate and respond to market activity and trends during future RTO < development. < < This FERC order comes at a unique and pivotal moment in RTO development < and will have an immediate and direct commercial impact upon business < activities in the electric power industry. The Commission's next phases < of RTO development will dictate business strategy for much of the < foreseeable future and will have substantial and unprecedented impact upon < the development of electric power markets and businesses operating in < those regional markets well into next year. < < < Michael J. Zimmer < Jonathan W. Gottlieb < Roger M. Gibian < < < __________________________________________________________________________ < __ < E-Notes is a publication of Baker & McKenzie. It does not constitute < legal advice or a legal opinion on any specific facts or circumstances. < The contents are intended as general information only. You are urged to < consult your attorney concerning your situation and specific legal < questions you may have. For further information on the subjects discussed < in E-Notes, contact Michael J. Zimmer, < mailto:michael.j.zimmer@bakernet.com or < Jonathan W. Gottlieb, mailto:jonathan.w.gottlieb@bakernet.com. < < For more information about BAKER & McKENZIE and our global energy and < utility practice, click on our electronic business card: < <<...OLE_Obj...<< < < or visit our website at <http://www.bakerinfo.com/Practice < Areas/nabfmp/energy/!viewme.htm< . < < <
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