May 20, 2002 — Recent Federal Energy Regulatory Commission (FERC) decisions regarding RTOs and ITCs are supportive of a majority of stakeholders, a new survey shows.

R.J. Rudden Associates Inc. has released an update on its Fall 2001 RTO Survey.

All categories of stakeholders responded to the original survey, including generators, transmission owners, marketers, distributors, utilities, regulators, large energy users, consultants, attorneys, independent system operators, federal authorities, financial advisors and project developers.

The results have been compiled into a paper titled “RTO Formation and Development: What Do Stakeholders Really Want?” The paper is available on the Rudden website at www.rjrudden.com in the “Profiles, Our Papers” section.

“It is clear that future directions in the RTO industry are taking shape more rapidly under Commissioner Pat Wood’s leadership,” stated Dr. Matthew C. Cordaro, of R.J. Rudden Associates, Inc. In this context, the recent decisions by the FERC on the Alliance RTO and TRANSLink filings are consistent with the opinions and preferences of a majority of the stakeholders originally surveyed.

An important affirmation of majority preferences for the independent, not-for-profit RTO/ISO structure over the for-profit Transco model is the major thrust of the FERC decisions.

In each of the two cases, the commission rejected the proposal that a for-profit entity assume a broader scope of authority upon becoming a member of the Midwest ISO. Most revealing of the FERC’s policies and intentions was the requirement in the Alliance Order that Alliance must decide within 30 days whether or not it would join the Midwest RTO or PJM, or join another RTO/ISO.

The decisions also support stakeholder majorities, as expressed in the survey, for divestiture of transmission assets into ITCs, by confirming an ITC’s opportunity to achieve greater returns by filing appropriate requests to the FERC for incentive rates. (An “ITC” is an independent transmission company that owns and operates transmission assets, but does not necessarily assume operational control in the same manner as an RTO/ISO.)

One qualification in the FERC orders, however, was a requirement that an ITC consult with the relevant RTO/ISO before making such a rate filing. A question in the survey on ownership issues related to rates also indicated a preference by a majority of stakeholders that transmission owners should be allowed incentive rates.

On the subject of transmission rates and pricing structures, the FERC decisions confirmed a majority preference for license plate rates as a transitional mechanism to average or postage stamp rates. The discussion in the decisions appeared to support the use of postage stamp rates for new facilities. This is consistent with the stakeholder preference indicated in the original survey.

From the discussion in the decisions, it is evident that the FERC will be deciding most of the multi-regional market design and seams issues as part of the standardized market design proceeding. It is also evident that the Commission is leaning heavily toward requiring Locational Marginal Pricing (LMP) for congestion management. The question on this subject in the survey dealt with just congestion rights, so no direct comparison can be made.

Finally the FERC decisions would allow the ITCs to maintain physical control of their assets. This in effect will result in the maintenance of multiple control facilities throughout an RTO such as the Midwest ISO. This decentralization of the physical control function was supported by the stakeholder majority preference reported in the survey for a distributed control, networked systems when the question about physical grid security was posed.

R.J. Rudden Associates, Inc. is among the world’s premier strategic, economic and management consulting firms specializing in energy matters. Throughout its history, Rudden has assisted clients in such mission-critical areas as: economic and financial analysis; strategic, management and marketing services; industry restructuring support; litigation and regulatory support; technical analysis; and implementation support.

Serving more than 300 clients worldwide, Rudden’s energy industry professionals include experienced energy company senior executives, energy economists, senior policy experts and regulatory officials, engineers, renowned futurists, and internationally respected subject matter experts. Many are widely published and each is highly regarded for his or her unique insight and targeted approach to problem solving. Rudden’s clients encompass the full range of the energy value chain and cut across all market sectors, including energy producers, the financial community, the legal and regulatory community, new business ventures, and large energy consumers.

Rudden has offices in New York, Washington DC, Houston, Atlanta and San Francisco. Additional information about the firm is available on Rudden’s web site at www.rjrudden.com.