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Federal Energy Regulator: Northeast Offers Example of 'Failure to Plan'

A "classic example" of the country's "failure to plan is New England and, frankly, the whole Northeast. We just aren't doing it right," FERC Commissioner Nora Brownell said last Thursday in an appearance at the Platts Northeast Power Markets Forum in Arlington, VA.

"I commend Gordon [van Welie, CEO of ISO New England]. I think that they've gotten some fixes in the transmission system, but how could we have built 10,000 megawatts of gas-fired generation and not thought about where the gas was coming from? How does that happen?

"How does it happen that we don't look at transmission and generation and supply and whatever kind of RPS standards we're going to have and demand side management -- all of a piece. And how is it that we don't ask big questions during planning? We ask very small, discrete questions..."

The FERC commissioner wonders "why don't we say what's in the best interest of this region? What do we need to do to shore up New York? What do we need to do to take advantage of our wonderful trading opportunities with Canada? They have hydro they want to sell. They have gas they want to sell. How can we strengthen that?"

She believes that "we need to really look at our planning models and say, what is it that we want to accomplish? How do we integrate these pieces? How do we get to a model where maybe we have shared risk?"

Brownell is not saying that investor-owned utilities, cooperatives and municipals "need to be out of business. But I am saying that we need to look at more partnerships. I think we should look at some shared risk. Investors are willing to take some risk, if they think the rules are right." She thinks that "there's an enormous amount of capital that wants to come in this space and we should let it."

She said that "we are, in this country, people who got addicted to cheap stuff. We oversold the idea of cheap energy as opposed to reliable, innovative, environmentally sound energy. We are a quarter-to-quarter country and these are not quarter-to-quarter investments or decisions. They are long-term decisions."

Customers are not getting adequate information, Brownell said. "I think people are willing to pay for reliability. I think they're willing to pay for innovation, but they don't get good information." There's a need to explain that "you've got choices. If you want your digital economy and you want to be competitive in a global economy and you want the lights, the computers, the air conditioning...this is what we have to do to get there."

She said that the U.S. was "blessed" with a warm winter. "I can't imagine what I think would have happened, particularly in New England, if we'd had a really long cold spell. It's frightening to think about because of the implications to real people."

Meanwhile, when it comes to competitive markets, Brownell thinks that "in the great debate we keep losing sight of where we wanted to go and how we want to get there and what are the benefits and what are the challenges because this is certainly not a journey without bumps in the road."

She said that there are "a whole bunch of reasons for that, not the least of which is there were some very difficult decisions we made in this country that make our path to competitive markets more challenging and less efficient than I've seen in other countries, but it is what it is."

Brownell worries about "this kind of knee-jerk response" to high gas prices. "I see us going back to the place that we decided didn't work." She said that "we need to stop, take a deep breath, and look at what we have to do."

The combination of high gas prices, lack of planning and more than a dozen states with renewable portfolio standards "make different kinds of demands on our grid. They offer different kinds of opportunity, but they need to be treated in a different way."

New York was singled out for praise by the energy regulator. She noted a recent report issued by the Empire State "that said exactly what competitive markets are doing." The New York State Department of Public Service report said that the state's "wholesale markets are among the most advanced in the nation," and that wholesale competition "has led to significant efficiencies."

During the Q&A portion of the meeting, Brownell was asked to offer a prediction on capacity markets in the U.S. She prefaced her response by making it clear that she would not comment on specific capacity market proposals pending at FERC.

Instead, she offered general remarks on capacity markets. "We chose a market design that mutes economic signals and having chosen that market design that mutes economic signals...we ended up without the correct economic signals to get new things built and so capacity markets are very much an artificial construct in response to an artificial construct of the market," Brownell said.

"If you really want markets, you pull up the Band-Aid and you deal with the volatility, but we chose not to do that, as we chose not to do structural separation," she added. "So we have this very...complicated system that I think will get simpler over time, but in the interim I think we have to be clear about what elements in a capacity construct are actually going to get new generation built."

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