30 May 2002 – The Federal Energy Regulatory Commission (FERC) said it was disturbed by recent announcements by some utilities that they intend to join so-called regional transmission organizations (RTOs) far removed from their home territories.

“I am really worried that we have gotten away from RTOs based on reliability and natural markets,” Commissioner Nora Brownell said during a FERC meeting.

The FERC has set forth new rules for utilities to combine their grid assets in RTOs with the aim of fostering competition by reducing bottlenecks on the US transmission grid to lower costs to consumers.

Two such groups are taking shape. The PJM Interconnection serves much of the Northeast and the Midwest Independent Transmission System Operator Inc. stretches across the Midwest and Plains states plus Texas, Arkansas and part of the Southeast.

Yet to be addressed is how the agency will steer policies that facilitate trading across borders of the multi-state RTOs, a key to allowing greater liquidity in the $220bn wholesale electricity market.

Midwest utility giant Commonwealth Edison, Illinois Power, and American Electric Power Co. Inc. recently said they intend to join the PJM Interconnection. ComEd serves customers in Chicago, and Illinois Power serves the rest of Illinois.

The utilities decided to join PJM despite their location in the backyard of the Indiana-based Midwest ISO, which operates the grid in all or parts of 15 central states and part of Canada.

The recent announcements could be the start of a “fruitbasket turnover” among Midwest utilities, said FERC Commissioner William Massey.

Massey expressed concern that existing FERC regulations on RTOs could “incentivize behavior that may or may not be in the public interest” and serve the “idiosyncratic interests of transmission-owners.”

“I think it’s time to make the tough decision to lay the framework for markets that actually work,” Massey said.

“I can’t agree more,” said Chairman Pat Wood, adding that the agency should look at options soon.

The FERC did not set forth any specific actions it will take to encourage utilities to join RTOs that are close to their natural boundaries.

It asked RTO participants to attend its next meeting on June 12 for discussions that Wood predicted will be “a little more free-wheeling than you’re used to.”