Interconnection

More than a decade ago, working at the energy laboratory at the Massachusetts Institute of Technology, the late Fred Schweppe devised a novel scheme for pricing electric transmission. His solution? Do nothing. Simply ignore transmission.

But not for long (em as power producers and

customers get more creative in matching plants with loads Dynamic scheduling is a "sleeper" issue in the move toward electric competition. Industry players are debating independent system operators. They are focusing on issues of governance and the form of transmission pricing. Consequently, they are ignoring critical issues concerning ancillary services. These services are not receiving the attention they deserve.

Hardly at all. In fact, they do little more than reapportion income (em a task that lies outside the FCC's mandate.

The Federal-State Joint Board on Universal Service recently proposed to expand subsidy programs for Lifeline telephone service. Under the Telecommunications Act of 1996, the Joint Board seeks to add more low-income households to the telephone network.

Will such a strategy work? Our recent findings suggest not. They indicate that simple continuance of such programs, much less expansion, is a highly questionable proposition.

Flow-based pricing ends

subsidies inherent in grid-wide,

postage-stamp rates.

I

n Order 888, the Federal Energy Regulatory Commission suggested 11 principles for forming an independent system operator, or ISO. In its third principle, the FERC offered this guidance on transmission pricing:

An ISO should provide open access to the transmission system and all services under its control at non-pancaked rates pursuant to a single, unbundled, grid-wide tariff that applies to all eligible users in a non-discriminatory manner.

With its membership opened, NEPOOL sets a transmission tariff, but still must develop competitive markets. In 1993, after a series of attempts going back as far as 1971, the New England Power Pool failed to reach agreement among its members for a regional transmission arrangement. But destiny then took over (em with help from the newly enacted Energy Policy Act (em to lead pool members back to the bargaining table. Finally, on Sept. 30, 1996, NEPOOL announced that its executive committee had agreed in principle on restructuring the pool.

A federal court blocks FCC's "TELRIC" cost rule, but some states endorse it anyway.

With the Federal Communications Commission (FCC) having lost a major court battle last fall, the state public utility commission (PUCs) have taken the lead in the deregulation of local telephone service promised a year ago when President Bill Clinton signed the Telecommunications Act of 1996 (the "Act").

Some states have opened generic investigations; others have chosen to proceed case-by-case in individual arbitration proceedings.

Sound bites from state and federal regulators.

Telco Interconnection Rules. Federal appeals court enjoins pricing aspect of rules published August 8 by the Federal Communications Commission to govern sale at wholesale of local exchange service elements by Bell system local carriers to new competitors (who would resell such elements to provide competitive local telephone services). Finds possibility of irreparable harm plus likelihood that Bell carriers might prevail on the merits of jurisdictional issues. No. 96-3406, Oct. 15, 1996 (8th Cir.).

Two recent decisions from Hawaii and Michigan illustrate some of the issues now arising on the question of resale of telephone service by local exchange carriers (LECs).

In Michigan, the state public service commission has directed the state's LECs to offer all basic local exchange services for resale in a nondiscriminatory manner to competitors and affiliates at wholesale rates. It defined "wholesale rates" as retail rates less the avoided costs to the LEC.

Nine of the 10 electric utility members (excluding PECO Energy Co.) of the Pennsylvania-New Jersey-Maryland (PJM) Interconnection have filed agreements and transmission tariffs at the FERC, seeking to replace the pool with a competitive power pool that would set a next-hour spot wholesale power price (to vary by location), but also allow bilateral trading.

The majority proposal would set up an independent system operator (ISO). The tariff would support poolwide open access and comparable transmission service.

While reviewing interconnection issues generic to competition in the telecommunications local exchange market, the Michigan Public Service Commission (PSC) has mandated that local exchange carriers (LECs) offer all basic local exchange services for resale at wholesale rates to competitors as well as affiliates.