US FERC threatens to make RTO membership mandatory

WASHINGTON, June 12 (Reuters) -

The head of the Federal Energy Regulatory Commission (FERC) on Wednesday threatened tough new measures to drive utilities to sew together their patchwork power grids, including a shift from voluntary to mandatory rules.

The FERC has set forth new rules for utilities to combine their grid assets into so-called regional transmission organizations (RTOs) with the aim of fostering competition by reducing bottlenecks on the U.S. transmission grid to lower costs to consumers.

But the process has slowed two years after the agency launched its RTO initiative, FERC Chairman Pat Wood told reporters. Signaling a shift in agency thinking, Wood said he would consider making RTO membership compulsory if utilities continue to stall on their decisions.

"I'm holding on tenuously to the voluntary nature of Order 2000," Wood said. "It gets harder every day. I may have to renege if this is just another year of treading water."

Two RTOs have taken shape so far. 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.

Such progress was not enough to satisfy Wood.

"We need this stuff to happen yesterday," Wood told reporters after a FERC meeting. "We basically need to say this stall game is not going to work."

Wood listed a variety of potential agency actions to advance the process, including opening an inquiry into the ratemaking practices of the two groups. Commissioner Nora Brownell suggested that the matter could be sent to agency arbitration if progress is not made.

At Wednesday's meeting, the heads of the nation's four RTOs reported on their progress. PJM and the Midwest ISO are working to create a common market for electricity by 2005.

PJM head Phillip Harris noted that the ball is in the FERC's court, as it is still working on standard market rules to help utilities interconnect their transmission networks. "Those actions you can take will drive the industry forward more than in any way possible," Harris said.

TOPOGRAPHY NOT GEOGRAPHY

The FERC has also expressed concern that some utilities decided to join RTOs far outside their home territories, moves which could create more bottlenecks instead of fewer.

Commissioners have pointed to decisions by Midwest utility giant Commonwealth Edison, Dynegy Inc. subsidiary Illinois Power, and American Electric Power Co. Inc. to join the PJM Interconnection. ComEd serves customers in Chicago, and Illinois Power serves the rest of Illinois.

Harris urged the FERC to "look at the topography, not the geography, because it's the way the electricity flows that makes the big difference."

But Wood countered that "even the topography here is a little disturbing." "It's still not anybody I'd want to go out and dance with," he said.

The FERC approved the Midwest ISO as the nation's first RTO in December 2001, after launching its RTO effort in 2000.

The agency in December ordered utilities participating in the competing Alliance GridCo. to join existing Midwest ISO or PJM. May 28 was the deadline for firms to make that decision.