Although my visit to the Midwest ISO (MISO, Carmel, Indiana, U.S.) headquarters was on a gray, blustery day, the weather did not dampen the human energy A that radiated from the facility.

When I arrived, participants of the expansion-planning group were streaming in. Attendees from Alliant, Calpine, XCEL, ATC, CWLP, Montana-Dakota Utilities, Alstom, Cinergy, KCP&L, LGE Energy, Peabody, SPP, MG&E, Cinergy and METC had a little dance in their step.

The buzz that once pervaded utility executive suites has a new home at MISO. The decisions made in this building will impact first the entire Midwest region and ultimately the entire country.

The Federal Energy Regulatory Commission (FERC) designated MISO as the first grid operator to qualify as a regional transmission organization (RTO). Therefore, all eyes are on MISO as the 195-member staff develops a uniform rate structure and an economic dispatch center for member utilities.

MISO CEO James P. Torgerson and his utility counterparts are charting a course that will likely impact the formation and operation of future RTOs.

T&D World: You were with Puget, then with Dayton Power & Light and now with MISO. What predicated your career moves?

Torgerson: Well, opportunity more than anything else. I was at Diamond Shamrock Corp. for 14 years. I was recruited by Washington Energy, a gas utility in Seattle, Washington, that merged with Puget Power. I stayed there a year after the merger and then went to Dayton Power & Light. I came here for the challenge. My former boss at Washington Energy was on the board of the ISO, and he recruited me. It was something new, different, cutting edge. Who knew what ISOs were going to do and what would happen? I just wanted the opportunity to be in on the ground floor and help build something from scratch.

T&D World: Sounds stressful. Do you have any hobbies to take your mind off work?

Torgerson: I like to work out every day. I get up around 4:30 a.m. and work out. It's a nice, quiet time for me. Even when I'm on the road, I still work out. Exercise is one of my passions.

T&D World: Any others?

Torgerson: I like to golf. I golf with my kids, but now two of them are off to college, so I don't get to play with them very often. Plus, they've gotten better than me. My oldest son has a six handicap.

T&D World: So, after you've had your workout, what awaits you at the office? Is the job anything like you thought it would be?

Torgerson: It is very different. I came to MISO as CFO, but even then, there were a lot more relationship requirements — dealing with the membership, transmission owners, state regulators and the FERC — than I had been used to in my other jobs. It's a very political job.

T&D World: Is that what you like?

Torgerson: That's not my normal style, let me put it that way.

T&D World: Does your financial background work in your favor?

Torgerson: Yes, it is an advantage because I understand costs and markets, how people make money.

T&D World: When did MISO first go operational?

Torgerson: In order to facilitate a smooth cutover, we phased-in our operations. On Dec. 15, 2001, we implemented security coordination, plus we initiated our procedures for outage maintenance, planning, market monitoring, generation interconnection and our dispute-resolution functions. We began commercial operations — selling transmission service under our tariff — on Feb. 1, 2002.

T&D World: What is your primary responsibility?

Torgerson: Probably the No. 1 thing I do is work on company strategy: where we're going, what we need to be doing, looking out into the future, working on relationships. The joint and common market initiative we have begun with PJM Interconnection, what we're doing with Tennessee Valley Authority (TVA) and the combination with the Southwest Power Pool are all examples of our strategic endeavors necessary to ensure that MISO is moving forward. We want our future to be consistent with what FERC wants to do, so that means we work with the commissioners, their staffs and talk to them.

T&D World: Why is MISO coming together so quickly?

Torgerson: The transmission owners here and the membership saw what FERC wanted, and it was consistent with their vision. We listened to what FERC was saying. We haven't seen much benefit from going in a direction other than what FERC wanted. Of course, we have different views here, too, in the Midwest; not everybody thinks exactly alike.

T&D World: Do you see a future for the former Alliance Companies?

Torgerson: There's clearly a role for transcos. Alliance members have made some big decisions recently as to what they are going to do.

T&D World: So do you think it's possible for a for-profit transco to be an RTO?

Torgerson: The Southern or SEtrans model may be one that works. They have an independent system administrator that takes on functions that could be separated from the transco. But then you have to ask, what is the RTO? It's the combination of the two.

As long as you have an entity that takes care of the market and certain functions associated with the market, you will give confidence to the marketplace. Fundamentally, that's what you need.

T&D World: Is your job mostly about trust?

Torgerson: I'd say so, yes, there's a lot of building of trust. If people didn't trust you to look out for the best way to manage the region equitably, I think you'd have trouble.

T&D World: Do you expect to see a robust grid?

Torgerson: Yes, but it will take a little time. Creating a robust grid is not only about constructing transmission. You have several options: build transmission, build new generation, create demand-side response initiatives. We must determine which option makes the most sense for an area to relieve congestion.

T&D World: And who decides that?

Torgerson: We have a big say-so through our planning process. As a regional entity, MISO looks at reliability of the transmission system and the needs of the transmission system from a broader, regional perspective. MISO's bottoms-up, top-down, long-term planning process helps identify and analyze areas of constraint. We work with the different areas — the states, the utilities — to come up with a long-term plan that's in the best interest of the region. We want to develop a plan that makes the most sense. For example, MISO's recommendations to relieve the constraint may include: new transmission, generation location or demand-side management initiatives. Options for paying for upgrades include spreading the cost among all beneficiaries of the upgrade. One of MISO's roles is to implement cost-recovery policy developed by FERC and state regulatory commissions.

T&D World: Do you work with the states much?

Torgerson: Yes. As a matter of fact, lately I've been visiting with the Minnesota commission about where we are headed with a single common market. I was invited to speak at the Mid-American Regulatory Commissioner's Conference (MARC) in Bismarck, North Dakota, earlier this summer. MISO is committed to maintaining an open-door policy for all of the states in its footprint.

T&D World: Do you think we will see more and larger transmission-only companies?

Torgerson: I think there's a future for them.

T&D World: You think they'll expand then?

Torgerson: I think so. We have five in MISO right now: American Transmission Co., TRANSLink, Detroit Edison's International Transmission Co., Trans-Elect's Michigan Electric Transmission Co., and GridAmerica. (The utilities that comprise GridAmerica are Ameren Corp., Northern Indiana Public Service Co. and FirstEnergy Corp.'s American Transmission Systems Inc.)

T&D World: So let's see, how many RTOs do you think we'll have?

Torgerson: That's hard to predict, but I don't think it will be a huge number. Regardless of the number, the goal is to make sure you've got a rational marketplace.

T&D World: Tell me about your recent announcements with adjoining areas.

Torgerson: They're each a little different. The arrangement with TVA is more of a seams agreement. We are working together on sharing information, but we also have the intent of getting one rate. Now that will take time and effort but we think it is worth pursuing. We're working things out to get to a one-stop-shopping system where people can schedule across both systems.

PJM is different in that we're focused on getting one market that will encompass PJM and the to-be-combined MISO/Southwest Power Pool. The former Alliance Companies have indicated an interest in participating in this as well, so you're looking at a big long-term market. The objective is to have a key marketplace that will go beyond one-stop shopping. We will run one Locational Marginal Pricing (LMP) engine for the whole region. We will also have security-constrained centralized dispatch. Whether that means one or two dispatch centers, we haven't worked out the technical details yet. We will provide security-constrained unit commitment.

T&D World: What is LMP?

Torgerson: LMP is the difference in pricing to move energy from one point to another. If there's a constraint, the LMP will increase for the constrained area and then customers decide whether they really want to buy or not. The way it works, let's say in PJM, is customers pay an access charge to get power on the transmission system. If there's a constraint you'll have different prices from point to point. We, MISO, need to come up with a different type of rate design. Technically, we have a rate today where you could go from anywhere in MISO for one base rate.

T&D World: So how do you handle transactions?

Torgerson: We bill for transmission usage, and we do all the settlement. The money does come to us, and then we distribute it based on the formulas in the agreements. We file the tariff for the entire Midwest ISO. Each zone or each utility can file what it wants for its zonal rate. We have rates that can be recalculated every year or so.

T&D World: What is the future for stand-alone transmission companies?

Torgerson: The American Transmission Co. is actually pretty good size right now. It covers the entire state of Wisconsin and a bit up on the Upper Peninsula of Michigan and a bit in Illinois. I also expect to see merchant transmission. With my background in finance, I've found there's always an appetite for good investments on Wall Street. As long as you get a solid investment with a good return and reasonable risk, people are willing to buy.

T&D World: Within MISO, are many of the members as aggressive as ATC in addressing bottlenecks and resolving problems, or do you resort to enforcement?

Torgerson: We can enforce upgrading related to reliability. If, for whatever reason, a utility can't build, the membership at large can fund the upgrade. Also, a third party can come in and do the work. The FERC actually ordered us to consider third-party bids as an option. If the need for additional transmission is economic, we would highlight it in our planning process where we thought new facilities might be needed.

T&D World: Wouldn't major merchant transmission initiatives need to be blessed in some way by an RTO?

Torgerson: That may very well be the case. And, again, our planning process will highlight this type of need. Stakeholders will be involved in the planning process, but it is ultimately our responsibility to deliver the plan. We have to present a plan every two years to our board of directors, and it has to be approved.

T&D World: How do you fund operations?

Torgerson: There is a FERC-approved charge that we add to all megawatt-hour transactions that covers our costs.

T&D World: And your board of directors, is it made up of utility appointees?

Torgerson: No. We have totally independent board members who cannot have any participation in the market or with any of the utilities. One of the FERC requirements is that the RTO have an independent board.

T&D World: So what are you focusing on now?

Torgerson: We filed with FERC at the end of March to approve our merger with the Southwest Power Pool, and that's actually going fairly well. The commission just issued a favorable order that will facilitate the closing of the merger. In fact, we're working on integrating the two companies now, in advance of the closing, which is on track for the third or fourth quarter of this year. We are also continuing discussions on developing a single market design.

T&D World: Do you anticipate a national robust financial trading market?

Torgerson: I could see one for the Eastern Interconnect. Look at all the trading that goes on in gas. Electricity has probably gone beyond volume of gas trading already. We will continue to trade over existing lines, working to create more liquidity in the marketplace.

James P. Torgerson is president and CEO, Midwest Independent Transmission System Operator Inc. (MISO). Torgerson is a veteran utility executive who joined MISO in 1999 as CFO. He was named president and CEO on Dec. 13, 2000, and has been the guiding force behind MISO's successful start of operations ever since.

Previously Torgerson was vice president, CFO and treasurer of DPL Inc. (Dayton Power & Light, Dayton, Ohio, U.S.), a combination gas and electric utility holding company in western Ohio.

Prior to DPL, Torgerson served as vice president and CFO of Puget Sound Energy Inc., which was created by the merger of Puget Sound Power & Light Co. and Washington Energy Co. As the executive vice president of Washington Energy Co., Torgerson was instrumental in putting together the merger.

Prior to that, he was chief administrative and CFO of Washington Energy Co., and vice president of development for Diamond Shamrock Corp. where he also held other planning and finance positions.

A native of Cleveland, Ohio, Torgerson received a BBA degree in accounting from Cleveland State University.

Large Market System Capabilities

In January, the Midwest Independent Transmission System Operator (MISO), PJM Interconnection and Southwest Power Pool Inc., unveiled a vision to achieve a joint and common wholesale market with a “one-stop” shop that meets the needs of all electricity producers and consumers in all or parts of 26 states, the District of Columbia and the Canadian province of Manitoba.

Since no organization has ever designed a market of such scale, is the creation of a large-scale joint and common electric wholesale market technically feasible? Yes, based on a preliminary technical feasibility analysis.

The envisioned market: More than 1 million sq miles (2.6 million sq km) of service territory, from Manitoba to the Gulf coast and across the mid-Atlantic region with a total generating capacity of 190,872 MW.

The analysis: Working with one of the industry's premier technical vendors, a team from PJM conducted an analysis of the technical feasibility of creating a large-scale energy market. The study modeled the unit commitment capabilities of 3150 generators — six times the current size of PJM and about the size of MISO, PJM and SPP combined.

The results: The initial analysis indicates that large-scale, security-constrained unit commitment challenges can be addressed within the timeframes necessary to support a day-ahead energy market based on voluntary centralized security-constrained unit commitment.

Test case parameters:

• 3150 generating units
• 606 must-run units
• 324 hydro units
• Generation capacity of 355,000 MW
• Peak load hour: 294,150 MW

The program was tested at multiples of one to six times the PJM market size (525 to 3150 generators) to benchmark solution time as a function of number of units.

Largest test case parameters:

• 48-hour study
• 1735 generators committed
• Solution time: 77 minutes

As a comparison, solution time on current PJM production security-constrained unit commitment is approximately 12 to 15 minutes.