In his parting shot as FERC chairman last week, James J. Hoeckerissued one last plea to California Gov. Gray Davis to join with theCommission to enforce its comprehensive reforms for the state’sbeleaguered power market: a $150/MWh soft price cap on wholesalesales, an emphasis on forward contracting by utilities,market-monitoring activities, and state participation in a regionaltransmission organization (RTO).

“The governor’s stated plans are unrealistic, and ours’ cannotbe fully implemented without his help. [It’s] time to put down theguns,” said Hoecker, who was particularly critical of Davis’sdecision last week to sign legislation that changes the governanceboard of the California Independent System Operator (Cal-ISO). Thestate took this action after FERC earlier had ruled that themake-up of the Cal-ISO board should be a joint decision involvingCalifornia and the Commission.

He called the legislation “another triumph of expedience overcooperation and understanding of the electric system,” and saidthat stacking the Cal-ISO board with state political appointees wasan “unacceptable intrusion” into federally regulated market powers.This “action evinces a bald disregard for federal jurisdiction anda rejection of cooperative solutions” to the power crisis. “Thestate needs to work with, not against, FERC,” he said.

Since the legislation removes “any meaningful chance” for FERCand the state to negotiate the issue of Cal-ISO governance, Hoeckercalled on the Commission to “enjoin this technically flawed andunlawful usurpation of its authority.”

At the state level, “I urge state policymakers to reject thefalse illusion that going it alone will serve the interests ofCalifornia consumers,” the former chairman said. “Instead,policymakers from all western states should work together tomaximize the benefits of the regional grid and regional market forall western consumers.”

Hoecker made these biting comments in a six-page “addendum” to hisearlier concurring opinion on the Dec. 15 decision in which FERCattempted — via a number of reforms — to overhaul theout-of-control bulk power market in California (see NGI, Jan. 8, 2001). He issued the writtenremarks last Thursday, his final day at the Commission.

As one of his last acts, Hoecker itemized a number of actionsthat he believes must be taken quickly: 1) the California PowerExchange (Cal-PX) must comply with the new pricing procedures inFERC’s Dec. 15 order, which prevent bids over $150/MWh from settingmarket prices (the Cal-PX is challenging the FERC order in court);2) forward contracts must be negotiated as soon as possible, evenif California’s utilities become bankrupt; 3) FERC must design newtechniques for monitoring and mitigating market power; 4)investigation of outage events must be conducted; and 5) FERC mustadopt “expeditious procedures” for reviewing prices on wholesalepower transactions between Oct. 2, 2000 and the end of 2000 todetermine if rates were “just and reasonable.”

Hoecker reiterated his support for temporary price caps inCalifornia [EL00-95, et al]. “I support a ‘time out’ from currentwholesale prices, if they are part of a work-out plan that has achance of garnering support from all parties and achieving an equalsharing of the pain.”

Even amid the turmoil of last week, as parts of the state wereplunged into darkness and cash-strapped Pacific Gas and Electricand Southern California Edison faced possible insolvency, Hoeckersaid he was convinced that the utilities “can still be withdrawnfrom the brink” of bankruptcy.

But if they should enter Chapter 11, this “does not materiallyalter the need to act to devise a coordinated plan of action,” henoted. “We have reached this stage of growing crisis through aseries of acts of short-term thinking and now the desperation ispalpable. We cannot, however, keep moving from one failure to thenext, with no agreed-upon objectives.”

One positive thing, Hoecker noted, may come from utilitybankruptcy — “perhaps it will force the debtors, creditors andstate officials to address the financial problems of utilities in anew light, without recrimination and posturing.”

But bankruptcy will not fix the state’s problems with its powermarkets, he said. “Chapter 11 will not recast or disposeof.California’s serious ratepayer and public-interest issues. Itwill not eliminate the power or responsibilities of regulators. Itwill not enable the system to create one additional electron.And.neither will it improve electricity services functions.”

Hoecker believes a “cavalcade of misjudgments and bad luck” isresponsible for the “genuine economic and social crisis” thatCalifornia finds itself in now. “The situation has deterioratedfurther since early January. Negotiations over long-term contracts[between utilities and suppliers] have reached impasse,notwithstanding many hours of tough talk in Washington and theHerculean (but ultimately inadequate) efforts of state legislatorsto buttress sagging utility creditworthiness and to find asustainable retail rate compromise.” With the rolling blackouts inCalifornia last week, he noted the financial crisis in the statehas escalated to a “serious threat to human welfare.”

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