FERC Aid to Western Markets Omits Price Relief
In what was probably its most comprehensive decision on
California since its famed Dec. 15 order, FERC last week announced
a series of actions designed to boost energy supply, reduce demand
and alleviate the delivery bottlenecks that continue to bedevil the
wholesale electricity and natural gas markets in the state and
overall western region.
But noticeably absent from the order, which spelled out both
immediate and proposed actions, was any mention of what California
and western electric customers want most - some form of temporary
price relief. Commissioner William Massey was the lone dissenter on
the order due to this omission.
By a vote of 2-1, the Commission moved to streamline regulations
to encourage greater production and sales of power from qualifying
facilities (QFs) and on-site generators, and offered incentives to
retail and wholesale customers to lower their consumption of
electricity. It also extended rate and other economic incentives,
such as a higher return on equity (14.5%), to utilities and gas
pipelines to provide additional capacity for the California market
in the short term. Moreover, FERC said it would reallocate its
staff resources to expedite the certification of gas pipeline
projects to California and the West [EL01-47].
Effective immediately on the electric side, the Commission said
it will require the California Independent System Operator
(Cal-ISO) and transmission owners in the West to file a list of
"grid enhancements" that can be completed in the short term; extend
and broaden the temporary waiver of operating and efficiency
standards and fuel-use requirements for QFs in the West; waive
prior-notice requirements and grant market-based rate authority for
wholesale power sales from on-site generation facilities of
businesses in the West; and authorize retail customers, where
allowed by state law, and wholesale customers who cut their energy
consumption to resell the load reduction at market-based rates. It
also plans to hold a conference in the spring with hydro licensees,
resource agencies and others to discuss ways to increase generation
In addition to boosting supply, the Commission seeks industry
comments on a proposal to award higher rates of return on equity
for projects that can significantly increase transmission capacity
on constrained routes and can be in service by June or Nov. 1 of
this year. Moreover, it proposes higher rates of return for system
upgrades that involve new transmission routes and can be in
operation by June 1, 2002 or Nov. 1, 2002.
To further promote investment in the transmission
infrastructure, FERC also is considering offering a 10-year
depreciation for projects that can boost transmission capacity in
the short term, and a 15-year depreciation for upgrades involving
new rights-of-ways that can be in service by Nov. 1, 2002.
On the natural gas side, the Commission is seeking comment on
proposals to waive the blanket-certificate regulations to increase
the dollar limitations for facilities under automatic
authorizations to $10 million and for prior-notice authorizations
to $30 million; waive the blanket certificates for portable
compressor facilities to expand pipeline capacity; AND offer rate
incentives to pipelines to build projects that will provide
additional capacity by this summer on constrained California-bound
As for hydroelectric projects, FERC has asked all hydro
licensees to examine their projects and propose any efficiency
modifications that may contribute to increased power generation
supplies. Hydroelectric facilities account for about 40% of the
power generated in the Western Systems Coordinating Council.
As part of its decision, FERC said it intends to hold a one-day
conference on April 6 in Boise, ID, with state regulators and other
state representatives on the issue of price volatility in western
energy markets. The Commission has asked the energy industries to
submit comments on its proposed actions by March 30.
Despite all of these actions and proposed initiatives, Massey
insisted the Commission's decision fell short. "I want us to do
everything that we can.....that is reasonable and rational, but
this order makes errors of omission and commission from which I
must dissent," he said. This order "focuses on quick fixes to help
narrow somewhat the gap between supply and demand in the West.
[But] I don't believe that anyone sitting at this table seriously
believes these measures will close that gap substantially."
He was especially critical of the order's absence of immediate
price relief for western electric customers. He called on the
Commission to establish as part of the order a Section 206
investigation into the "appropriateness of effective price
mitigation for the western interconnection until the longer term
solutions are in place and the [wholesale electric] markets operate
Such an investigation should explore the "conditions in the
western interconnection [that] are forbidding competitive market
operation, how long those conditions are expected to last, and what
the Commission can do to provide immediate price mitigation,"
But Chairman Curt Hebert countered that the order was not
intended to address short-term price relief. That issue, he said,
was tackled in a March 9 order that put 13 California power
suppliers on notice that they may owe refunds of up to $69 million
for electricity overcharges during the month of January.
This decision was designed to "squeeze every megawatt of power"
out of the California market, Hebert noted. The Commission is doing
"everything in its power" to make that happen.
Massey pointed out that a number of the actions taken by FERC in
last week's order weren't new. "Many of these same actions were
authorized by the Commission last year in our May 2000 reliability
initiative," he said.