PPL Supports Single RTO for Northeast

PPL Corporation (NYSE: PPL) said Tuesday (7/24) that a Federal Energy Regulatory Commission proposal to establish a single Regional Transmission Organization for the Northeast is a significant step forward in establishing a reliable and properly functioning wholesale electricity market in the region.

(Photo: http://www.newscom.com/cgi-bin/prnh/19981015/PHTH025 )

"PPL strongly supports the most comprehensive amalgamation of the existing and proposed Northeast pools, including the establishment of a single RTO," the company said in a statement filed as part of the FERC Mediation on Northeast wholesale market structures. PPL is one of many entities participating in the mediation meetings beginning Tuesday in Washington.

"While there are details that need to be addressed, PPL is confident that a plan can be established that will ensure a proper functioning market and a fully-fledged RTO," PPL's statement said.

  Here is the text of PPL's statement:

     As a proponent of truly competitive energy markets, PPL Corporation
 strongly supports the most comprehensive amalgamation of the existing and
 proposed northeast pools, including the establishment of a single RTO
 management for the region (the Northeast RTO or NERTO) and the elimination
 of marketplace distinctions and control area boundaries.  Because PPL
 Corporation is involved in the generation, marketing, transmission, and
 distribution of electricity, the company brings a unique perspective to
 these issues.  PPL Corporation feels that the principles outlined here
 form the basis for the development of NERTO and will fairly balance the
 needs of all parts of PPL Corporation's business and all participants in
 the wholesale electricity market.
     PPL hopes to see improvements as quickly as possible.  While there are
 real details that need to be addressed, PPL is confident a plan can be
 established that will ensure a properly functioning market and a
 fully-fledged RTO.
     PPL has unique experience in the three critical regions of the
 proposed NERTO -- PJM, NYISO and ISO-NE.  PPL believes that the PJM
 ISO/RTO has been generally successful and may be the best platform to
 guide the development of NERTO.  PJM, however, has significant problems
 with its markets and structures that must be resolved in developing NERTO.
 The Commission pointed out some of these issues in its Order giving PJM
 provisional RTO status.  PPL understands the key elements of the PJM model
 that must be addressed as it is applied in forming NERTO.

                           Statement of Principles

     PPL supports the principles espoused by the ONE RTO Coalition.  We
 believe the Northeast energy market demands a single RTO, a single market,
 a single operator, a single tariff, a single transmission expansion
 regime, a single interconnection regime and a single independent monitor.
 PPL does not support interim steps.  While there will be differences in
 the specific implementation details, PPL fully supports the goals of ONE


                            Issue 1: Independence

     The RTO must be independent of the energy market and of participants
 in the energy market.
     The function of an RTO is to provide transmission service and
 facilitate energy markets, not to provide energy or to provide energy
 markets.  Thus, NERTO should be limited to the day-ahead and real-time
 balancing markets needed today for reliable operation.  As NERTO and its
 energy markets develop, PPL would be willing to consider establishing new
 limits on the RTO's intrusion in the energy markets, but PPL would tend to
 want less, rather than more, involvement of the RTO in energy markets.
     Even with this limited exposure to energy markets, it is critical that
 NERTO operate its energy markets with clear and understandable rules and
 procedures that are on-file with the Commission in order to assure its
 independence of energy market concerns.
     An RTO should not decide what an appropriate price or price-signal is.
 The market should be making that determination.  An RTO should only
 provide the facilities that allow that price and price signal to be
 created.  NERTO must not have a bias to move price either higher or lower;
 too often, a price-setting bias has created significant problems, even in
 PJM.  To help maintain its independence in this regard, NERTO should not
 be given the power to "mitigate" prices that result from the markets it
 administers.  Only the Commission should be able to order price
 corrections or refunds where lawful and appropriate.
     While we recognize the need for the RTO to provide for ancillary
 services, these should be market-based and allow for self-supply when

                             Issue 2: Governance

     The means by which an RTO governs itself is a critical element of its
 independence.  In both New York and New England, the governance structure
 has lent itself to manipulating the outcomes of the market and decisions
 of the ISO by market participants.  In PJM, significant governance
 problems exist in the reliability area.  Thus, PPL advocates a strong RTO
 with an advisory committee composed of market participants.
     The participants on the advisory committee should include entities
 with a stake in wholesale markets, which includes generators, transmission
 and distribution owners, load-serving entities and marketers.  Each of the
 three ISO's has a history of exclusion.  For example, PJM has not always
 fairly included generators in decision-making and NEPOOL has excluded
 certain end-users.  The RTO would also be advised to listen to other
 views, but its customers are wholesale users.

                            Issue 3: Reliability

     Reliability should also be addressed by the RTO itself.  PPL advocates
 creating a new reliability area in the northeast, composed of some or all
 of NPCC, MAAC and ECAR.  This reliability area should have its reliability
 criteria established by the RTO, in consultation with NERC and market
 participants.  Reliability agreements among participants should also be
 encouraged, so that reliability also becomes part of the competitive
 environment.  However, PPL supports the RTO establishing initial
 reliability standards based on the installed capacity model used
 throughout the northeast.  The issue of sharing reserves in this regard
 -- i.e. should Ohio face interruption for problems in Massachusetts --
 must also be addressed.

                             Issue 4: Monitoring

     As presently implemented by the existing Northeast RTOs, the market
 monitoring function has strayed from its original purpose and has become a
 tool of ISO management to slow the transition to truly competitive
 markets.  ISO market monitors repeatedly intervene in markets to force
 prices below competitive and efficient levels in a short-term effort to
 satisfy a perceived constituency while ignoring the long-term health of
 wholesale markets, reliability and stable prices.  In doing so, market
 monitors have proposed or implemented highly regulatory and manipulative
 measures that have little, if any, grounding in sound economics.
     The market monitoring function varies considerably among the three
 northeast ISOs.  None of the market monitors is independent; PJM's is
 fully integrated into the PJM staff and appears to report through the
 staff to the PJM Board.  As proposed, the New England market monitor would
 be more independent, but would still be within the RTO.  Although the PJM
 and New England market monitors do not have direct remedial powers, the
 New York market monitor does.  His intervention to "mitigate" prices has
 been a source of great controversy.
     We believe that the monitoring function should be fully independent of
 the RTO.  It should report directly to the Commission and its employees
 should not be employees of NERTO.  This is essential as long as the RTO is
 responsible for the real-time and day-ahead markets.  Moreover, a fully
 independent monitoring position with region-wide responsibility would
 attract a well-respected lawyer or economist of the highest academic and
 professional credentials.  Such an individual would understand competition
 and avoid the temptation to micro-manage the market.
     The independent monitor's responsibilities should be limited to
 reviewing the market's mechanisms and identifying concerns.  It should not
 have remedial power.  FERC has no authority to delegate its enforcement
 responsibilities to what are, in essence, private persons.  Only the
 Commission, and not the independent monitor, may impose fines or pronounce
 individual market participants in violation of a tariff, Commission
 regulations or the Federal Power Act, including any determination that any
 market participant has, or has exercised, market power.  To the extent an
 independent monitor determines that individual market participants have
 engaged in activities that violate the tariff, Commission regulations or
 the FPA, its conclusions should only be shared with the Commission, and
 not the RTO.  Moreover, any such allegations should only be made where the
 independent monitor has proof in excess of some minimum due process
 standard.  The very reporting of such allegations will in itself likely
 interfere with market conduct that may be efficient and could impose
 unnecessarily great cost on a wrongly accused market participant.  These
 are severe outcomes if the monitor is wrong.
     PPL conducts its business in a fair and ethical manner in all of its
 markets.  We stay within the rules and law.  PPL supports penalties and
 sanctions against entities that do not.  However, this support
 pre-supposes a legitimate form of policing (as described above), clearly
 stated penalties in a tariff, and an opportunity to defend one's actions.
 Existing market monitoring systems in the northeast RTOs, including PJM,
 do not today satisfy these criteria.
     As a final point on monitoring, the proposed independent monitor must
 also monitor the RTO and transmission owners, as well as market
 participants.  It should report on inefficient rules or practices and RTO
 activity that it inconsistent with the RTO's role as an independent,
 neutral administrator of its markets and the transmission system.

                           Issue 5: Energy Markets

     A critical outcome of the mediation should be a single market for the
 northeast.  Market participants do not want the same "design" being run
 over three or four markets, which will do little to eliminate seams.  What
 is needed is a single market, an objective we believe is achievable.
     PPL believes the current PJM markets are the best starting point.  The
 PJM markets provide for both physical and financial transactions and for
 financial transmission rights.  The systems have proven themselves
 relatively flexible and trouble-free, capable of responding to new needs
 and conducive to competition.  Thus, PPL advocates what has become known
 as the Standard Market Design -- a nodal locational pricing system with
 self-scheduling rights including financial transmission rights and a
 two-settlement system with virtual bidding.
     Long-term it is also desirable to amalgamate control areas.  PPL
 recognizes the hurdles to eliminating the several control areas in the
 northeast in the near term.  However, we believe that to reach the
 efficiency levels and the ultimate unified northeast market, the existing
 control area boundaries, rooted in the same traditionalism as the ISO
 boundaries and usually coinciding with them, must be eliminated.  PPL
 believes the final goal should be a single control area coinciding with
 the footprint of the RTO.  Such a single control area will do the most to
 eliminate the seams issues described in the FERC orders.
     Regardless of the resolution of the control area issue, NERTO should
 be the single point of contact for market participants for all aspects of
 transmission service.  A single, easily used user interface should allow
 transactions throughout NERTO.
     PPL also strongly encourages the Canadian or non-jurisdictional
 entities in NPCC to join the effort to create the RTO in the northeast AND
 to include their systems in that RTO.  FERC should limit the access to the
 northeast RTO by any entity not joining the RTO or providing full access
 to its transmission systems.

                            Issue 6: Transmission

     PPL supports full and current collection of all reasonable costs
 incurred to own, maintain and support the transmission system in
 transmission rates.  In addition, we support creating appropriate
 incentive rate programs to encourage the construction of new transmission,
 especially transmission that is needed to integrate NERTO.
     PPL supports the voluntary establishment of truly independent
 transmission companies in the northeast, although we do not advocate
 mandatory divestiture.  If voluntary divestiture occurs, such assets
 should receive favorable rate treatment.  Boundaries between the
 transmission companies' operations and the operation of the RTO must be
 clearly defined.
     PPL also endorses NERTO as the proper entity to manage the entire
 interconnection process.  NERTO must also control the transmission
 planning and expansion process, unless independent transmission company
 structures are created in NERTO.  PPL believes the PJM generation
 interconnection protocol, which was developed by the PJM stakeholders and
 is in the Open Access Transmission Tariff, should be adopted by NERTO.
     PPL specifically rejects the concept of pancaked "PTF" and "non-PTF"
 facilities in New England.  PPL also supports a single transmission rate
 for the entire NERTO.  However, the establishment of a single rate for all
 of NERTO should be addressed as a "Day 2" issue after resolving the
 critical issues of governance, energy markets and monitoring structures.


     PPL supports the most rapid movement toward the unification of the
 NERTO sub-groups that is possible without endangering system reliability.
 We believe that the following are milestones that should be established as
 goals of the process:

     -- September 2001 - Conclusion of mediation.  File produced plan,
         scope and timing of NERTO with FERC.
     -- October 2001 - ratification of NERTO concepts by existing ISO
     -- November 2001 - file approved plan with FERC. Creation of advisory
         participants board and NERTO board of directors.
     -- December 2001 - approval of plan for NERTO by FERC.
     -- January 2002 - Begin detailed planning and implementation.  Begin
         creating tariffs and agreements.
     -- June 2002 - File tariffs and agreements with FERC.
     -- October 2002 - FERC approves tariffs and agreements.
     -- December 2002 - initiation of integrated single market in PJM,
         NYISO and ISO-NE.  Dissolution of PJM-W, PJM, NYISO and ISO-NE.
     -- May 2003 - operation of Northeast Reliability Area.  Dissolution of
         NYSRC and MAAC.  Removal of PJMW from ECAR and ISO-NE from NPCC.
     -- December 2003 - dissolution of NY, NE, PJM, and PJM-W control areas
         and establishment of Northeast control area.

PPL Corporation, headquartered in Allentown, Pa., generates electricity at power plants in Pennsylvania, Maine and Montana; markets wholesale or retail energy in 42 U.S. states and Canada; and delivers electricity to nearly 6 million customers in Pennsylvania, the United Kingdom and Latin America.


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SOURCE: PPL Corporation

Contact: Dan McCarthy of PPL Corporation, +1-610-774-5758 or Fax:

Website: http://www.pplweb.com/

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