UNITED STATES OF AMERICA

FEDERAL ENERGY REGULATORY COMMISSION

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Notice of Request for Public	)	Docket No. RM93 -3-000

Comments On Regional Transmission	)

Group Proposal	)

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COMMENTS OF THE U.S. DEPARTMENT OF JUSTICE

ON REGIONAL TRANSMISSION GROUPS

On November 10, 1992, the Federal Energy Regulatory Commission ( FERC or Commission), invited comments on a proposed standard for FERC certification of Regional Transmission Groups (RTGs).1 The proposal, first presented to the conferees then discussing inclusion of an RTG provision in the Energy Policy Act of 1992, was developed by a cross- section of entities in the electric industry.2

The Department of Justice (Department) supports the Commission's efforts to promote the utilization of RTGs as a means of increasing the efficiency of the nation's electric power system. While joint activity among competitors may under certain circumstances raise competitive concerns, there is nothing inherently anticompetitive in the concept of an RTA . Indeed, the Department believes that RTGs can enhance competition and efficiency in bulk power markets and encourages the FERC to support their development. As regional competitive bulk power markets continue to develop, more transactions are likely to take place that involve transmission by more than one utility. The fact that FERC recently has been granted authority to order wheeling3 is likely to increase the amount of voluntary wheeling that takes place. For these reasons, planning and operation of the electric grid on a regional basis are likely to become more important than ever before and RTGs have the potential to play an important role.

RTGs offer a potentially useful device for obtaining significant potential efficiencies by coordinating regional planning, facilitating bulk power transactions, optimizing grid usage, and developing efficient expansion of the grid, all while maximizing reliance on privately negotiated transactions. RTGs will serve as a clearinghouse for information concerning all transmission users, not just native-load customers can make known long-term needs for transmission in or through a region, transmission planners can more efficiently design, expand, and operate the grid to accomodate these needs on a regional basis. 4 Planning and operation of transmission lines throughout an entire regional grid will allow utilities to accomodate the maximum number of service requests in a timely manner and to take advantage of economies of scale inherent in transmission facilities. The potential efficiency of regional planning and operation consists of more than merely saving some transactions costs of negotiating with multiple utilities or avoidance of duplicative transmission facilities. The action that would be the most efficient response by an individual utility to the requests of its customers may not be the most efficient response when considered in the context of all regional utilities simultaneously attempting to accomodate all demands on the system. The advantage of an RTG is that it can allow configuration and use of the system in a way that would be appropriate for the maximum number of the transactions.

The Commission should use its authority to encourage efficient bulk power transactions. One way to do so is through encouraging participation in efficiency enhancing RTGs . Because the development and certification of RTGs has not been mandated by the Congress, transactional information needed for rational planning and operational will have to be obtained from non-RTG members voluntarily. Even for members, unless otherwise agreed to in the contract, building in conformance to RTG planning recommendations will be voluntary. (See §(G)(3)). Buyers and/or sellers of transmission may opt out of the RTG process and instead simply request (or provide) transmission at the time it is needed. There may be valid business justifications for failing to provide information early in the RTG process; however, the disinclination of entities in a region to participate in the process may be detrimental to the efficient development and functioning of the regional transmission grid. For this reason, FERC should take such a failure to engage in rational regional planning and operation into account, a one of the factors it considers, in determining whether the approval or denial of a request for mandatory transmission under §211 is in the public interest. Such a policy will encourage rational, consentual transmission rather than piecemeal building and inefficient transmission operation based on the exigencies of individual transmission orders.

RTGs offer an opportunity to maximize flexibility and creativity in developing solutions to transmission issues through private negotiation. These potential benefits could be diluted, however, or lost by FERC insistence on uniform terms for RTG agreements. For example, long- term transmission agreements do not tend to be uniform. Frequently they are negotiated to meet very specific needs of both buyers and sellers. Regulation in general does a far worse job of tailoring transactions to meet such specific needs than does direct negotiation. This is true even when the result of the negotiation will be subject to relatively strict regulatory scrutiny after the fact. RTAs can provide a framework for such direct negotiation.

The need to preserve flexibility and opportunity for experimentation is strong with respect to RTG pricing. 5 The FERC and the industry have not yet developed expertise in the management and pricing of wheeling on demand. The economic and technical conditions affecting transmission can vary from region to region. Wheeling on demand poses a risk that adversely could affect existing customers by harming reliability and/or resulting directly or indirectly in provision of service without adequate compensation. RTGs consisting of transmission providers and users knowledgeable about technical and economic conditions within a region are likely to be able to discern practical approaches tailored to address these regional I

ssues . The Commission should encourage them to do so.

In sum, the FERC should adopt broad guidelines for the certification of RTGs , and not prescribe standard clauses or rigid rules. The FERC should act primarily as a reviewer, not author, of RTG agreements to allow maximum flexibility for regions to address transmission issues, consistent with the public interest.

Respectfully submitted,

John W. Clark	"/s/"

Acting Assistant Attorney	Mark C. Schechter

General	Chief

Antitrust Division	Transportation, Energy, and

Agriculture Section

"/s/"

Mary E. Fitzpatrick

Assistant Chief

Economic Regulatory Section

"/s/"

Jade Alice Eaton

Attorney

Transportation, Energy, and

Agriculture Section

Room 9114

Antitrust Division

U.S. Department of Justice

555 4th Street, N.W.

Washington, D.C. 20001

(202) 307-6316