A number of senators last Wednesday grilled FERC Chairman Pat Wood on whether his agency has truly listened to concerns voiced by state officials over the Commission’s recently unveiled standard market design (SMD) for U.S. wholesale power markets. One senator went so far as to warn Wood that if the lawmaker isn’t convinced that FERC is genuinely working to respond to SMD-related worries articulated by various regions, he will push to derail the proposal in Congress.

“What I’d like to hear from you, Pat, is a positive response to an offer to work cooperatively, because frankly what I’ve been hearing and reading is nothing but negatives about the Commission’s proposal for a new standard market design,” Sen. Larry Craig (R-ID) told Wood at a hearing held by the Senate Energy and Natural Resources Committee looking at the SMD proposal. A notice of proposed rulemaking (NOPR) related to the SMD was issued this summer.

“Unless I’m persuaded that you and your colleagues intend to satisfactorily answer the concerns that are reflected within the regions of our country…then I must tell you that I’ll work in every way to bring down your effort,” Craig went on to say. “What I see is not what I like, nor do I believe it fits the needs of our region and the dynamics that we’ve worked for decades to create within that region. I do not want to create a new design for the country to deregulate and re-regulate in a centralized, federal position that I think is detrimental to the consumers.”

Sen. Craig Thomas (R-WY) noted a recent statement from western governors indicating that FERC needs to work more closely with the states on SMD. The senator questioned the apparent disconnect between the position of the western governors and a statement by Wood that the Commission has been working with states on SMD.

“We have done a tremendous amount of outreach,” Wood responded. He noted that FERC staff went on the road the day after the Commission voted out the SMD NOPR “to start explaining to folks on the details because it is comprehensive, it is complex.”

But Thomas wasn’t satisfied with Wood’s answer. “There’s a difference between explaining your point of view and dealing with other people and including their point of view, which you obviously haven’t done,” Thomas said. Wood pointed out that FERC has “heard a lot of things over the past 10 months, 11 months, now a year, that have changed our minds. I’ve personally changed my mind on a number of significant issues.”

“The sweeping changes envisioned in the proposal have not been adequately justified by FERC for the West as we work to recover from the energy crisis of 2000-2001,” Govs. Jim Geringer (WY) and John Kitzhaber (OR) wrote in a Sept. 17 letter to Sens. Jeff Bingaman (D-NM) and Frank Murkowski (R-AK). Bingaman and Murkowski serve as chairman and ranking member of the energy and natural resources committee, respectively, while Geringer and Kitzhaber are co-lead governors for energy issues at the Western Governors Association (WGA).

“FERC needs to work more closely with the states and other participants in the nation’s regional electricity markets to develop both a better understanding of the problems we face and to partner on more practical solutions to those problems,” Geringer and Kitzhaber said in their letter. “We urge the Congress to take this approach.”

“This is almost mind boggling for people in the Northwest,” Sen. Maria Cantwell (D-WA) said at the hearing. “We still have 50% rate increases in some parts of our state, maybe more, and another rate increase proposed for this fall. These are people who are going to be paying a 50% rate increase for the next five or six years because of the debacle that we’ve had in energy,” she said. “I have many concerns with this 630-page report that makes the California model look simple by comparison and so I’m very, very concerned — as are my colleagues — about how this plays in the West.”

Cantwell said that FERC’s SMD proposal “completely ignores” the unique nature of the Northwest. Cantwell questioned whether an independent transmission provider controlling the dispatch and redispatch of hydro-based power, based on pure market signals, would subvert requirements to protect the Endangered Species Act or treaty obligations with Canada.

The lawmaker also said that the independent transmission provider element of the SMD proposal appears to conflict with the existing Northwest Power Act. “I don’t even think it could be implemented and be consistent with the Northwest Power Act,” Cantwell told Wood.

She asked Wood how the SMD proposal complies with the mandates called for under the Endangered Species Act and the Northwest Power Act. “Clearly, the other acts have to control. This is a federal regulation, those are statutes,” Wood responded. As a result, “it may be difficult” for FERC to implement SMD, the FERC chairman went on to acknowledge.

“I think we are grappling with that with the RTO West filing,” Wood said. FERC signed off on several key elements of the RTO West proposal at its agenda meeting last week (see related story). “There are certainly some obligations that BPA [Bonneville Power Administration], in specific, have under their enabling statutes and under the Northwest Power Act statutes that really kind of create a little bit more complexity.”

Cantwell asked Wood whether FERC would consider exempting the Pacific Northwest from SMD if it turns out that the agency can’t implement the proposal’s requirements in light of the Northwest Power Act or the Endangered Species Act.

“I don’t think that I would be serving your constituents well by just carving them out of what we need,” Wood said. “The point [of SMD] is to make costs and rates go down and stay down and if we say one part of the country is not deserving of that kind of improvement then I would not be doing my job.”

More broadly, Wood underscored the point to Cantwell that “the reason we’re here today talking about this is because of what happened the last few years. We would be absolutely remiss in our job if we didn’t try to analyze what went wrong…in that market and how to make sure that it does not happen so that your customers aren’t paying 70% higher rates.”

A spokesperson for Cantwell last week said that the senator plans to offer legislation, as part of the omnibus energy bill or one of the pending appropriation measures, to slow down FERC’s efforts to implement SMD.

Cantwell and other members of the Pacific Northwest congressional delegation have sent a letter to Energy Secretary Spencer Abraham, citing their deep concerns about applying FERC’s SMD to the electric transmission grid in the Pacific Northwest as well as other regions across the nation.

Echoing the concerns of state regulators and other state officials in the region, “we believe the rules will increase — rather than reduce, as the Commission claims — opportunities for market manipulation and price gouging, thus raising rates and harming customers,” wrote Sen. Patty Murray (D-WA) and Rep. Peter DeFazio (D-OR) in a Sept. 12 letter, which was signed by 24 House and Senate lawmakers.

“Our preliminary assessment [of FERC’s SMD proposal] is that many of the market rules work better in the tight power pools of the eastern interconnection than in the loosely connected Southeast and West. Many utilities and state regulators from the [two] regions have expressed their concerns to FERC, but there is little evidence in the proposed rule that FERC understands or sees value in accommodating significant regional differences,” the lawmakers said.

Meanwhile, at the Senate hearing last week, Sen. Ron Wyden (D-OR) took aim at the SMD NOPR’s proposal related to a bid cap. Wyden and Wood engaged in a rather testy exchange over what level the bid cap will be set at in the West. Wood said that the cap “would stay where it is until we change it with a specific order in the Western markets. It was set at $250 starting later this month, and that’s where it will stay until the competitive conditions dictate otherwise.”

Wyden attempted to pin Wood down on whether the West could wind up facing a bid cap of $1,000. “Is it $1,000 or not?,” he asked the FERC chairman. “It’s $250. It’s $1,000 in other markets that are healthier,” Wood said.

“What is the bid cap under your proposal so that Westerners understand exactly this morning what you envisage?,” Wyden pressed Wood. “The bid cap would be established on a region-by-region basis,” the chairman responded. “Could it be $1,000?” Wyden asked. “It could be $1,000,” Wood acknowledged.

The Oregon lawmaker jumped on the chairman’s statement. “That’s what we’re concerned about. That’s the bottom line. Under your proposal, it could quadruple so 11 western states and people in our region, who’ve been clobbered already — FERC hasn’t taken any action on refunds — under what you just said it could quadruple.”

In a statement attached to the Geringer/Kitzhaber letter, the WGA said that “It is unfortunate that FERC has not developed an empirical record of abuses in the West that supports the changes proposed in the SMD rule.” The WGA said that the proposed SMD rule “provides only anecdotal examples of discrimination in transmission, but not a compilation of information to demonstrate its case.”

The WGA also asserted that the Commission has not evaluated the impact of the SMD proposal on consumers. While FERC plans to do an environmental impact statement on SMD, the WGA said that the agency did not undertake “rigorous analysis” of the impact of SMD before proposing the rule.

“Prior to moving ahead with implementing SMD in the West, FERC, in cooperation with Western states, needs to study whether SMD is feasible in the Western Interconnection if non-jurisdictional utilities, such as municipal utilities, cooperatives, public utility districts and federal power marketing administrations, which operate a large percentage of all transmission in the West, do not participate,” WGA said. “SMD should not be forced on only a limited portion of the transmission grid in the interconnections.”

Meanwhile, on the other side of Capitol Hill, certain members of the House of Representatives are also growing increasingly vocal in their criticisms of the SMD proposal.

Rep. Peter DeFazio (D-OR) recently urged fellow lawmakers crafting a comprehensive energy bill to place restrictions on what he called FERC’s “virtually unintelligible” SMD proposal.

The House Appropriations Committee earlier this month voted in favor of asking the Department of Energy to study the impact of SMD prior to the issuance of a final rule. The request came in the form of report language included in a House Energy and Water appropriations bill. The language was inserted into the bill at the request of DeFazio and Rep. George Nethercutt (R-WA).

Adding fuel to the fire of the growing backlash against SMD was a letter sent to Congress last week by more than a dozen governors from states in the western and southern parts of the country urging lawmakers to order FERC to slow down its plans to adopt SMD. The governors said that the proposal merits a “thorough review” by Congress and others.

In a Sept. 19 letter signed by 18 governors from the two regions, the state chief executives said that the SMD proposal “is an exceptionally far-reaching proposal which represents a significant shift in the nation’s policy and it is therefore deserving of a thorough review by Congress, states and other stakeholders.” The letter was sent to Rep. Billy Tauzin (R-LA) and Bingaman, who are key players in the ongoing House-Senate energy bill conference committee.

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