FERC yesterday announced a series of actions aimed at boostingenergy supply, reducing demand and eliminating the deliveryconstraints that continue to plague the wholesale electricity andnatural gas markets in California and other western states.

Noticeably absent from the draft order, which detailed theactions, was a proposal that would give California and westernelectric customers what they most want – some form of price reliefin the short term. Commissioner William Massey was the lonedissenter on the order due to this omission.

By a vote of 2-1, the Commission moved to streamline regulationsto encourage greater production of power, and offered incentives toretail and wholesale customers to reduce their consumption ofelectricity. In addition, it extended rate and other financialincentives, such as a higher return on equity (14.5%) to promptutilities and gas pipelines to provide additional capacity for theCalifornia market in the short term [EL01-47].

Among the immediate actions announced at Wednesday’s regularmeeting, the Commission said it will require the CaliforniaIndependent System Operator (Cal-ISO) and transmission owners inthe West to file a list of “grid enhancements” that can becompleted in the short term; extend and broaden the temporarywaiver of operating and efficiency standards and fuel-userequirements for qualifying facilities (QFs) in the West; waiveprior-notice requirements and grant market-based rate authority forwholesale power sales from on-site generation facilities ofbusinesses in the West; authorize retail customers, where allowedby state law, and wholesale customers who cut their energyconsumption to resell the load reduction at market-based rates; andhold a conference in the spring with hydro licensees, resourceagencies and others to discuss the possibility of increasinggeneration capacity.

Moreover, FERC proposes and seeks industry comment on providingrate incentives for electric transmission and natural gas pipelinefacilities that can offer additional capacity in the short term;using the interconnection authority under Section 210b of theFederal Power Act to alleviate impediments to supply; waivingnatural gas certificate regulations to increase the limits forfacilities under automatic authorization and for prior-noticeauthorization; offering blanket certificates for construction andacquisition of portable compressor stations to increase gaspipeline capacity to the California market; and allowing forgreater flexibility at licensed hydro projects to increasegeneration while protecting the environment.

As part of the decision, FERC also said it intends to hold aone-day conference with state regulators and other staterepresentatives on the issue of price volatility in western energymarkets. The Commission is asking the gas and electric industriesto submit comments on its five proposed actions by March 30.

Despite all of these actions and proposed initiatives, Masseyinsisted the Commission’s decision fell short. “I want us to doeverything that we can…that is reasonable and rational, but thisorder makes errors of omission and commission from which Imustdissent,” he said. This order “focuses on quick fixes to helpnarrow somewhat the gap between supply and demand in the West.[But] I don’t believe that anyone sitting at this table seriouslybelieves these measures will close that gap substantially.”

He was especially critical of the order’s absence of immediateprice relief for western electric customers. He called on theCommission to establish as part of the order a Section 206investigation into the “appropriateness of effective pricemitigation for the western interconnection until the longer termsolutions are in place and the [wholesale electric] markets operatenormally.”

Such an investigation should explore the “conditions in thewestern interconnection [that] are forbidding competitive marketoperation, how long those conditions are expected to last, and whatthe Commission can do to provide immediate price mitigation,”Massey said.

But Chairman Curt Hebert countered that the draft order was notintended to address short-term price relief. That issue, he said,was tackled last week when the Commission put 13 California powersuppliers on notice that they may owe refunds of up to $69 millionfor 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 Commissionis doing”everything in its power” to make that happen.

Massey pointed out that a number of the actions suggested byFERC yesterday weren’t new. “Many of these same actions wereauthorized by the Commission last year in our May 2000 reliabilityinitiative,” he said.

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