Testimony, Comments & Press Releases

My name is Michael Travieso and I am the People’s Counsel for the State of Maryland. I have been in that position since 1994. The Office of People’s Counsel is an independent state agency that represents the interests of residential utility consumers of electricity, natural gas, telephone and water services before the Maryland Public Service Commission, federal agencies, state and federal legislatures, and the courts. Created in 1924, the Maryland People’s Counsel is the oldest consumer advocate agency of its kind in the United States.

My office is a member of the National Association of State Utility Consumer Advocates (NASUCA). NASUCA represents 42 state utility consumer offices from 40 states and the District of Columbia. While I am speaking on behalf of the Office of the Maryland People’s Counsel today, NASUCA members have extensive experience with electric utility restructuring at the federal and the state level. NASUCA has issued a series of resolutions concerning electric deregulation and the formation of regional transmission organizations that indicate the views of consumer advocates across the country. Many of my comments here today rely on those resolutions which are available on the NASUCA website.

I would like to start by commending Chairman Barton, the members of the committee and your staff for your continuing efforts to seek out and include the views of consumers and consumer representatives as you proceed with your inquiry into the development of effective, competitive wholesale power markets.

My testimony is not intended as an endorsement of the deregulation and restructuring of the electric industry. I share the concerns being raised by many about the ability of residential and small business customers to benefit unless wholesale markets can be made to function efficiently. This testimony will focus on my views on the basic principles necessary to establish a proper framework for a competitive wholesale market.

My points in summary form are the following:

1. Without a workably competitive and efficient wholesale market,

retail prices will be higher than, and perhaps much higher, than necessary.

2. The principal difficulty in ensuring a truly competitive wholesale market will be creating one of sufficient size and scope to create uncertainty on the part of the owners of generation that their bids to sell power will be accepted.

3. Both for reliability and market design purposes, RTOs must continue or establish installed or deliverable capacity requirements and concomitant capacity markets in addition to energy and ancillary services markets.

4. Generally speaking, larger regional transmission organizations are better than smaller ones because of the reduction in administrative and transaction costs and the increase in generation capacity and diversity.

5. Generally speaking, the existing transmission systems were not planned or built primarily to serve regional markets and, therefore, must be redesigned and enhanced to do so.

6. RTO market design must encourage the utilization of demand-side peak load reduction programs. Without much greater demand elasticity than currently exists in PJM and elsewhere, peak load prices will be easily subject to the exercise of market power.

I believe that individual states must continue to play a prominent role in assuring reliability and in helping with the design of wholesale markets. However, the success or failure in obtaining workably competitive markets will ultimately depend on the FERC and on RTO structure and authority. FERC should have clear authority and jurisdiction to:

a. Determine the appropriate size of RTOs;

b. Require transmission owners to join particular RTOs;

c. Return generators to cost-of-service prices if necessary;

d. Provide regulatory oversight to RTOs in order to monitor regional wholesale markets and impose appropriate behavior modifying penalties on parties or entities shown to have abused their market power;

e. Regulate the long-range planning and cost recovery of transmission owners in order to foster the efficient sale and delivery of electricity and capacity across large regional wholesale markets;

f. Ensure the competitive neutrality of transmission systems by assuring that transmission owners will provide for open access and use of the transmission system at just and reasonable rates without any discrimination in favor of generation owning affiliates;

g. Ensure the provision of transmission service at the lowest cost possible;

h. Require that RTOs meet strict standards of economic operation and investment;

i. Require that RTOs have independent non-stakeholder boards which guarantee input from consumer advocates and state public service commissions;

j. Provide a regulatory forum for the resolution of complaints by market participants of tariff or RTO protocol violations, violations of relevant federal law and the use and abuse of market power;

k. Require RTOs to enforce compliance with rules and protocols promulgated by the North American Reliability Council (NERC).

An RTO must exhibit the following characteristics and be able to perform the following functions:

· it must be independent from market participants;

· it must serve a region of sufficient scope and configuration to

perform effectively and support efficient and non-discriminatory power markets;

· it must have operational responsibility for all transmission facilities under its control;

· it must have authority for maintaining the short-term reliability of the grid.

· it must administer its own transmission tariff and use a transmission pricing system that promotes efficient use and expansion of transmission and generation facilities;

· it must ensure the development and operation of efficient and fair mechanisms to manage transmission congestion;

· it must develop and implement procedures to address parallel path flow issues both within its own region and with other regions;

· it must provide for a supplier of last resort for all ancillary services that cannot otherwise by supplied efficiently by market mechanisms;

· it must be the single OASIS—the Open Access Same-Time Information System—site administrator for all transmission facilities under its control and independently calculate total transmission capacity (TTC) and available transmission capacity (ATC);

· it must monitor markets for transmission services, ancillary services and bulk power to identify design flaws and potential market power problems and propose appropriate remedial actions; and

· it must be responsible for planning necessary transmission additions and upgrades in coordination with appropriate state authorities.

I favor fewer and larger RTOs so long as they are properly structured; cost benefit analyses are performed prior to their formation; and costs are not shifted from one set of customers to another or from customers of high cost transmission owners to those of low-cost transmission owners. I oppose incentive ratemaking for transmission owners as unnecessary and not cost-effective. This country’s transmission system should be regulated as the monopoly it is and should be operated in the public interest.

I believe that the FERC currently has the legal authority to do what it is now doing regarding the creation of four large RTOs and regarding market power mitigation and the imposition of customer refunds on entities that abuse market power. In my view, FERC needs to exercise its power to ensure that markets work efficiently and consumers are protected. FERC does need additional authority over transmission planning and in certain other areas.

If the FERC has any concerns about its authority, I urge this Subcommittee and Congress to give FERC the specific tools it asks for, including:

- specific authority to order the formation of RTOs and to order utilities to join them;

- authority to ensure the adoption of uniform interconnection standards;

- authority to award customer refunds for past periods if the FERC determines the rates charged to be unjust and unreasonable;

- authority to assess civil penalties for market power violations;

- enhanced authority to review and scrutinize mergers;

- clear authority to remedy market power abuse;

- authority to mandate reliability standards for bulk power markets and to work with the states to ensure the reliability of electric supply;

- authority to require the development and implementation of demand response/peak sharing programs.

That concludes my prepared remarks. I want again to thank the Sub-committee for this opportunity to appear and to speak on behalf of the residential consumers of Maryland and to express what I believe are the concerns of consumers in general.