The Federal Energy Regulatory Commission last week announcedfive “practical steps” that it will take this summer to “alleviatereliability stresses” on the electric transmission grid duringperiods of heightened demand. Commissioner Curt Hebert Jr.,however, cast doubts not only the effectiveness of the measures,but FERC’s motive for proposing them.

“I suspect the real reason for the Commission’s enhancedinterest [in reliability] is politics and public opinion,” he said,adding he’s been around the energy business “long enough to knowpolitics when I see it.” If anything, “all [this] notice actuallyaccomplishes is to announce that the Commission is doing its job,and deflect blame from any disruptions this summer to Congress,”Hebert noted.

“…..[W]e’re not going to do any good here. If we want to dosome good, let’s build [gas] pipelines, let’s get transmissionalternatives. Let’s give the people what they deserve, and whatthey deserve is good, efficient, reliable energy, and nobody’sgoing to build it without investment.”

If brownouts or blackouts do occur this summer, the “blameshould be directed at this Commission for not taking decisiveaction last summer and two summers ago…..to promote capitalinvestment in our energy infrastructure and new entry into emergingcompetitive markets,” Hebert said during last Wednesday’s regularCommission meeting.

“Frankly, I think to call this document…..political in natureis outrageous,” countered Chairman James J. Hoecker. “This agency,which barely spoke of reliability…..in the last couple of years,has done more to promote it than at any time in its history. Toblame the FERC for reliability problems is kind of like blamingCosta Rica for the Cold War.”

It will take “cool heads to address this [reliability] issue. Itwill “take the cooperation of regulators, it’ll take sophisticatedoperation of the grid, [and] it’ll ultimately take legislation,”Hoecker noted. “It’s something that all Americans have an interestin addressing, and addressing not with rhetoric and ideology, butwith practical solutions. We got a few of them in this notice, andwe’re anxious to hear about more.”

The heated exchange between Hebert and Hoecker came one weekafter Sen. Frank Murkowski (R-AK) assailed the Commission for notpunishing power utilities that stole power from the grid lastsummer, which triggered reliability problems in the Midwest. Hesaid he believed FERC already possessed the authority to takedisciplinary action. But in the off chance it doesn’t, he invitedthe Commission to ask Congress for it.

“…..[T]here’s no need to await further action by Congress,”Hebert said. “The Commission already has all the authority it needsto effect real reforms that will promote reliability and efficientelectricity service.”

But he doesn’t think the five initiatives announced by FERC,which are intended to promote supply, enhance deliverability andtemper generation demand, will do much to improve reliability thissummer or beyond [EL00-75]. Specifically, the measures:

1) Will permit businesses (such as automakers), which ownon-site generation to supply their private electricity needs, tosell excess power to non-affiliate buyers during shortagesituations without first notifying FERC of their intent. Also, thebusinesses could sell their power at market-based rates;

2) Waive prior-notice filing requirements for public utilitiesseeking to amend their power sales contracts with wholesalecustomers to include load-reduction agreements this summer. Undersuch demand-side arrangements, FERC says public utilities and theircustomers will be able to negotiate “mutually beneficial agreementson short notice should the need arise during periods of peak summerdemand;”

3) Will permit costs related to demand-side arrangements to berecovered under cost-based pricing formulas. FERC believes thiswill remove any disincentives for utilities and their customers torely on such arrangements as a source of supply during generationshortages;

4) Remind transmission providers to periodically update theirfigures for capacity benefit margin (CBM) and transmissionreliability margin (TRM) to accurately reflect estimates of theiravailable transmission capacity as summer nears; and

5) Direct the Commission staff to be available to respondquickly to regulatory questions or suggestions about how FERC couldfurther improve the reliability of the transmission grid in boththe short and long term.

Hebert believes these initiatives are only half-hearted attemptsto tackle the reliability problem. For example, “my personalopinion is that offering market-based [rates] to the owners ofon-site generation will introduce precious few megawatts into theinterstate grid,” he said, referring to the first measure.

If FERC is really serious about increasing the generation supplyfor this summer, “it should act immediately to withdraw all pricecaps on generation markets,” Hebert noted. “Let’s do a pilotproject. Let’s remove price caps in California [and New England]for six months…..and let’s see what happens.”

Moreover, the Commission should give transmission providers anincentive to provide reliable, efficient service. It “could andshould tie earnings and profits to reliability-based andperformance-based criteria, such as the number and duration ofservice interruptions, customer satisfaction and throughput,” hesaid.

“What’s our answer to reliability? Our answer is Order 2000,”which calls for the creation of regional transmission organizations(RTOs) nationwide, said Hoecker. In the shorter term, “we are doingour part to ensure generation adequacy” by removing impediments todemand-side arrangements, reminding transmission providers toappropriately assess their reliability needs and to post accurateestimates for available transmission capacity, he noted.

Grid reliability is an “absolutely critical” issue that’s notgoing to go away anytime soon. “The level of bulk power sales hasincreased 400% in the last four years. There are new marketentrants coming into the market, new kinds of sales andtransactions that are putting enormous strain on [a] system [that]frankly wasn’t built to handle the commercial traffic that it nowmust handle,” Hoecker said.

Susan Parker

©Copyright 2000 Intelligence Press, Inc. All rightsreserved. The preceding news report may not be republished orredistributed in whole or in part without prior written consent ofIntelligence Press, Inc.