Transmission Issues

One of the most revolutionary changes in the history of the electric utility industry occurred in April 1996 when the Federal Energy Regulatory Commission (FERC) issued two orders to implement wholesale wheeling, which had been mandated by Congress in the Energy Policy Act of 1992 - Rule 888 and 889.

FERC has limited jurisdiction over G&Ts, such as Sunflower, that are RUS borrowers, but the new orders already are having a practical impact on Sunflower’s non-member sales as open access comes to the national marketplace for wholesale electricity.

Although the Energy Policy Act of 1992 reserved decisions about retail wheeling to the states, 1996 saw bills introduced in Congress that would reclaim that authority and implement retail wheeling nationally. Those bills failed, but more were again introduced in 1997 and practically every year since then. These bills also failed at the national level but some states across the nation decided to implement retail wheeling anyway. In California, customers were bombarded with price spikes and constraints in the electrical system preventing buyers from reaching lower cost sellers.

Since the energy debacle in California that saw the state spend more than double their previous electric rates for electricity while suffering rotating blackouts at the same time, cries are now coming from California legislators threaten to repeal retail wheeling. The collapse of Enron also threw cold water on the industry restructuring efforts across the nation. At the root of all of these issues is a clear problem - Transmission.

Most electric transmission systems, such as Sunflower's, were constructed to serve the needs of the electric customers within a certain geographical area. Ties to outside utilities were also established for reliability to supply electricity if local generation was lost. This system was never designed or intended to support the massive wholesale transactions across these ties as has been a result of Rule 888 and 889.

It is much like a rural highway system built by local counties and funded in part by the state suddenly being forced to carry interstate traffic. Of course, some traffic will flow across the highways, but not up to the expectations of the system planners.

What is needed is an interstate transmission system to be built to handle the volume of transactions envisioned in Rule 888 and 889. Such a system would be constructed with toll booths along the way to collect fees for use and send them to the persons responsible for building that portion of the highway.

This is what is hoped can be accomplished by the formation of Regional Transmission Organizations (RTOs). Utilities will turn over control of their existing transmission system and constraints can be eliminated by new construction  where it is necessary to accommodate power flows across the region. Utilities will be paid a fee for the use of their existing facilities and will participate in funding the construction of new facilities.

To help speed this process along, FERC has proposed their Standardized Market Design Rule (SMD) that helps to implement regional RTOs with sufficient scope to be capable of transmission power across large geographical regions of the country.

While these efforts appear to present a worthy goal, States will no longer have a say in the rates that utilities will be paid for the use of their facilities. This rate making ability has long been the domain of state regulatory commissions and the battle lines have been drawn on these lines to prevent the implementation of SMD.

Clearly, much debate is needed to hammer out the details and provide for the construction of the interstate transmission system. Sunflower is monitoring these national developments carefully. We will be participating in these discussions as they move forward.

Our position is simple, we are for any proposition that lowers the cost of transmission to our customers and opposed to any proposition that increases these costs. To do otherwise would be contrary to our cooperative principles and would defeat the intended purpose of Rule 888 and 889.