Federal Energy Regulatory Commission Order Nos. 888 and 2000

Federal Energy Regulatory Commission Order Nos. 888 and 2000
Name	Federal Energy Regulatory Commission Order Nos. 888 and 2000
Issued by	Federal Energy Regulatory Commission
Date	1996 (Order No. 888); 1999 (Order No. 2000)
Significant for	Transmission access reform, regional coordination, restructuring of electricity sectors
Related legislation	Federal Power Act

Federal Energy Regulatory Commission Order Nos. 888 and 2000 Order Nos. 888 and 2000 are landmark Federal Energy Regulatory Commission directives issued in 1996 and 1999 that reshaped transmission access, wholesale electricity competition, and regional coordination in the United States; they set mandatory open access rules, standardized tariff templates, and promoted formation of regional entities to manage grid planning and operations. The orders intersected with contemporaneous policy and legal actors including the United States Department of Justice, state public utility commissions such as the California Public Utilities Commission, prominent utilities like American Electric Power and Commonwealth Edison, and litigation in federal courts including the United States Court of Appeals for the District of Columbia Circuit.

Background and Regulatory Context

Throughout the early 1990s, debates about restructuring involved stakeholders such as Enron, Northern States Power Company, and trade groups like the Edison Electric Institute, while regulatory frameworks derived authority from the Federal Power Act and prior Public Utility Regulatory Policies Act of 1978 decisions; major events including the California electricity crisis and the rise of independent power producers such as Calpine framed needs for transmission reform. Judicial precedents from the United States Supreme Court and appellate decisions influenced Federal Energy Regulatory Commission jurisdiction over wholesale power sales and transmission, and policy dialogues included state commissions (for example New York Public Service Commission), regional bodies like the New England Power Pool, and multilateral organizations such as the North American Electric Reliability Corporation. Market actors including PJM Interconnection, ISO New England, New York Independent System Operator, and investor-owned utilities debated remedies to perceived discrimination, stranding concerns, and market power exercised by incumbent transmission owners.

Order No. 888: Open Access Transmission and Pro Forma Tariff

Order No. 888 required public utilities to provide open access transmission service under a standardized pro forma tariff, compelling entities such as Pacific Gas and Electric Company, Duke Energy, and Southern Company to file tariffs preventing transmission discrimination favoring merchant affiliates. The directive relied on factual records involving trade associations like the National Association of Regulatory Utility Commissioners and testimony from independent generators such as Mirant to justify mandatory common carrier obligations under sections of the Federal Power Act, and directed compliance through unbundling of transmission, generation, and marketing functions similar to structural separation in other sectors exemplified by Telecommunications Act of 1996 debates. Order No. 888 also established reciprocity rules and non-discriminatory interconnection practices affecting system operators including ISO New England and entities participating in the Western Electricity Coordinating Council.

Order No. 2000: Regional Transmission Organizations and Planning

Order No. 2000 established incentives and criteria for formation of Regional Transmission Organizations (RTOs), urging formation of organizations meeting governance and operational standards comparable to existing entities such as PJM Interconnection, Midcontinent Independent System Operator, and New York Independent System Operator. It enumerated functions including regional transmission planning, congestion management, and market monitoring, drawing on models like the New England Power Pool and lessons from the California Independent System Operator experience; stakeholders such as American Public Power Association and Transmission Access Policy Study Group engaged in rulemaking debates. The Order addressed seams issues across regions like the Western Electricity Coordinating Council footprint, encouraged independent administration of market-based rates, and specified criteria for decision-making, stakeholder representation, and finance arrangements to reduce exercise of transmission market power by firms including Entergy and Progress Energy.

Implementation, Compliance, and Litigation

Implementation required filings, compliance audits, and dispute resolution through the Federal Energy Regulatory Commission administrative process and adjudication in federal courts including the United States Court of Appeals for the Ninth Circuit and the United States Court of Appeals for the District of Columbia Circuit, with major cases involving utilities such as Consolidated Edison and merchant generators such as Dynegy. Compliance mechanisms involved pro forma tariff modifications, network integration transmission service agreements used by PJM Interconnection and Midcontinent Independent System Operator, and market rule revisions overseen by the North American Electric Reliability Corporation and regional reliability councils. Litigation challenged aspects of negotiated transmission rates, reciprocity, and RTO criteria; outcomes influenced subsequent filings by organizations like ISO New England and corporate restructurings by firms including Exelon.

Impacts on Electricity Markets and Grid Reliability

The orders accelerated development of competitive wholesale markets operated by PJM Interconnection, New York Independent System Operator, and ISO New England, contributing to increased participation by independent power producers such as Dynegy and Calpine and facilitating financial arrangements used by investment banks and asset managers. They affected congestion management mechanisms (locational marginal pricing) deployed in regions like PJM and influenced resource adequacy debates involving state regulators such as the New Jersey Board of Public Utilities; reliability outcomes engaged institutions like the North American Electric Reliability Corporation and regional councils including the Southeastern Electric Reliability Council. Market restructuring prompted investment in transmission upgrades by utilities including American Electric Power and spurred innovations in ancillary services trading used by ISO New England.

Criticisms, Revisions, and Subsequent Policy Developments

Critiques arose from advocacy groups such as the Public Citizen and utilities like Florida Power & Light citing concerns about stranded costs, market power, and adequacy of regional governance; academic commentators from institutions like Harvard University and Massachusetts Institute of Technology analyzed effects on prices and investment. Subsequent policy developments included FERC orders on standard market design, later rulemakings addressing transmission incentives, and interactions with federal statutes and cases involving the Supreme Court of the United States, while regional formation and seams management evolved with RTO/ISO expansions and proposals for enhanced regional planning undertaken by entities such as PJM Interconnection and the Federal Energy Regulatory Commission itself. The legacy of Order Nos. 888 and 2000 continues to shape reforms involving transmission cost allocation, interregional coordination, and debates among stakeholders like state public utility commissions, merchant generators, and investor-owned utilities.

Category:Energy law