Barton, FERC Efforts for CA Unwelcomed by Dems

A House GOP stopgap bill for California and FERC's decision to limit price mitigation to emergency spot transactions in the state's wholesale power market were broadsided by House and Senate Democrats last week, as well as by California energy officials.

Democrats uniformly assailed the legislative and regulatory actions for the out-of-control California electric market on the grounds that they would not provide any real price relief for the state this summer. Republicans, on the other hand, applauded both efforts to help the state, and sharply criticized their Democratic colleagues for not stepping up to the plate with alternative solutions.

As evidenced by its April 26 price-mitigation order, the Commission "has been doing quite a good job at implementing the Bush policy of aggressive indifference towards California's crisis," said Rep. Edward Markey (D-MA) during a hearing last Tuesday before the House Energy and Air Quality Subcommittee. It was called to consider Subcommittee Chairman Joe Barton's (R-TX) legislation that seeks to provide short-term relief to the California market, but Democrats also used the opportunity to take shots at FERC and its latest price-mitigation ruling.

Markey called the Commission the Bush administration's version of The Mamas and the Papas, a '60s pop group whose biggest hit song was "California Dreamin'." To the tune of that song, he sang, "All the days are dark; blackouts every day; FERC just takes a walk and lets the gougers play."

As for FERC's price-relief effort, Richard Sklar, senior adviser and chairman of California Gov. Gray Davis' generation implementation task force, told the House panel that the Commission "set out to get a horse to run in Louisville [in the Kentucky Derby] and got a camel" instead.

Markey commended Barton for recognizing there is a problem in California that needs federal action, but he quickly added, "Sadly the Bush administration does not appear to share your concern or your desire for action" in the state. The fact that no one from the Bush administration was present to testify on the Barton bill last Tuesday seemed to bear this out, he and other Democrats pointed out. Administration agencies --- the departments of Energy and Interior, and the Environmental Protection Agency --- were invited but declined to appear before the subcommittee, they said.

The Barton bill in its current form also obviously lacks bipartisan support from subcommittee members, and likely will not get through the Senate, said Rep. Jane Harman (D-CA) of the full Committee on Energy and Commerce. Barton expects to move his initiative to mark-up this week (possibly May 8) and then quickly to the House floor. But judging from the reaction of Democrats last week to the existing bill, that may not be an easy task.

Rep. Anna G. Eshoo (D-CA) of the full House committee also praised Barton for his efforts, noting that "you've gone out of your way" to help California more than most at the federal level. "Unfortunately, [your legislation] does nothing to resolve the crisis." While the Barton legislation may be the "only train leaving the station" at this time, Eshoo said it was "critical" for Congress to add another "cart" to the train that would provide for cost-based power rates in California.

".....I'm not sure that bringing FERC before us today [to testify] is going to much help in this particular matter," noted Rep. John Dingell (MI), ranking Democrat on the committee and a sharp critic of the Commission. There's a "fairly simply solution" to many of the problems in California, he believes, and that is for FERC to carry out its statutorily mandated duty to establish just and reasonable prices in the West. But "I am reminded by a statement that my Dad used to say, and that is 'you can take a jackass to water but you can't make him drink."

Acknowledging that while there was a "pressing need for congressional scrutiny" of California's power problems and that Barton's legislation was well intended, Rep. Henry Waxman (D-CA) said that the "substance" of the bill was "fundamentally flawed." For starters, it fails to address runaway wholesale prices, he noted, adding that Congress must enact legislation now to prevent price gouging in the West this summer. In addition, Waxman said the legislation interferes with California's actions to resolve its own problems and could undermine those efforts, creates "massive loopholes" in the nation's environmental laws and fails to adequately promote energy conservation.

The outspoken lawmaker presented a detailed critical analysis of the Barton measure, saying he consulted with both the Bush administration and California officials on the legislation, and "they told us this bill does them harm."

"Our state needs help. [But] this bill doesn't do it. Let's get [a] bill that does," he told subcommittee members. Rep. Rick Boucher (VA), the ranking Democrat on the subcommittee, agreed, saying that a "major revision of the bill before us will be required" to have any effect in California.

While the majority of Democrats were criticizing and/or laying blame with the Bush administration, FERC or the Barton legislation, Rep. Ralph Hall (D-TX) turned to Congress itself. Here it is approaching the hot summer months, he said, and "really we haven't done hardly anything" since January to aid California. By now, Congress ought to have had legislation passed and on the president's desk, he noted.

California energy officials also had a number of concerns with the Barton bill, H.R. 1647, pointing to its failure to address high prices in the wholesale power market, its focus on "broad" environmental waivers, apparent conflicts with state efforts to solve its problems, lack of conservation measures, as well as the bill's overlap with states' efforts to create a regional transmission organization (RTO).

"What we need from you desperately is to simply tell the Federal Energy Regulatory Commission to do its job," said one state official. The federal government gave the natural gas industry seven years to transition to a deregulated market, and it bailed out the savings and loan industry, he noted, so why not give the power industry similar consideration.

While the Barton bill is an "ambitious" measure, it does not deal with the "excessively high prices" that have been bedeviling the California electricity market, said William Keese, chairman of the California Energy Commission (CEC). Without effective price mitigation, he estimated state power consumers could pay as much as $70 billion for energy this year.

As for FERC's recent price-mitigation order, Keese and Sklar said it was "ineffective" as well, adding that there were a number of ways it could be gamed. "We just don't think that the proposal closes all the loopholes that would allow those [high] prices to be charged."

Most of the California energy officials testifying before the House subcommittee agreed that there has to be a better mousetrap to restrain bulk power prices in the state, but they weren't quite sure what it was.

In addition to the absence of price mitigation, Keese said he was concerned that the legislation would allow the Western Area Power Administration (WAPA) to move in and site power lines in California without first consulting with state officials. Keese, as well as WAPA Administrator Michale Hacskayio, agreed that the bill should specify that this should be a cooperative effort. This concern aside, Keese conceded the $220 million that the legislation would appropriate for WAPA to upgrade the constrained Path 15 transmission line in California would "probably [be] welcomed" by the state. Further, he believes that any effort to form a western-wide RTO should be left to the states, not to Congress.

Jeff Stier, vice president of the Bonneville Power Administration (BPA), concurred on the RTO issue. "We [already] have a very involved effort underway" in the Pacific Northwest to establish an RTO, he said, adding that the Barton bill's directive to create an RTO that encompasses much of the West could jeopardize this. "The politics are just very delicate" on this issue, he noted.

Michael Kenny, executive officer of the California Air Resources Board (CARB), told the subcommittee that the air quality provisions and air-emission waivers in the legislation were either "extraordinarily broad" or unnecessary. The state can build more power plants and continue to protect its environment, he said, adding that the two were not mutually exclusive. Any legislation that would "alter this well-established policy" by California was unnecessary.

In an update of California's supply situation, state energy officials told Barton that the state is shooting to have all of its qualifying facility (QF) power generators back online within the next eight to 10 days, a move that they said will help ease California's energy crunch, but won't solve it.

The shutdown of QF plants due to non-payment by utilities was only a "piece of the problem,"and re-starting them will help to "marginally" solve the situation, said Sklar of Gov. Davis' task force. "We've got to get the QFs back on line, and we've got to reduce the forced outages to a reasonable number. We've got to get the new generation, we've got to do the conservation. With all of those, we got a shot at it, but I would not bet on it."

Assuming all the QFs are brought back up, there's considerable disagreement over how much capacity that would add to the state's power supply. Estimates range from less than 1,000 MWs to 3,000 MWs or more. "We believe that only 1,500 MWs of QFs are off-line" at this point, Keese told the House subcommittee. Since early April, he said that many QFs have been paid by the state's investor-owned utilities for at least part of the money owed them, and as a result have returned to service.

Chairman Barton quizzed the California energy officials at length on the QF issue, noting he thought the provision in his bill that would permit QFs to sell power to third parties was critical to reducing blackouts in California this summer.

Keese further said predictions that the state will have 5,000 MWs of new baseload generation on line by this summer were optimistic. He estimated that by mid-June about 800-900 MWs of new capacity would be in operation, 2,600 MWs by mid-July, and-if all goes well --- "probably" 4,500 MWs by mid-September.

In an unprecedented move on Capitol Hill, the Senate Energy and Natural Resources Committee last Thursday held an oversight hearing for the sole purpose of giving FERC the chance to explain its price-mitigation order to the panel. Committee Chairman Frank Murkowski (R-AK) and other Republicans were supportive of the Commission's action, while Senate Democrats -- like their House counterparts -- decried its failure to provide price relief in California during all hours, not just during reserve shortages.

While FERC limited price mitigation to occur only during Stage I, II and III emergencies, this still will provide effective relief in the months ahead, countered Commissioner Linda Breathitt, given that it's very likely that California "may be in the stages for a lot of the summer."

Testifying before the Senate committee, Breathitt defended the Commission's actions when Sen. Dianne Feinstein (D-CA) referred to the April 26 decision, which called for price mitigation of spot deals in California during reserve emergencies, "in a sense...next to worthless."

Given the restrictions of FERC's order, Commissioner William Massey said he had been told that only about 40% of the transactions in the California spot market this summer would be subject to price mitigation, which means that 60% or more would be free of any price restraints whatsoever. Massey was the sole FERC member to partially dissent from the April 26 order.

The Commission's price-mitigation scheme, which goes into effect in late May, has been referred to as the "Swiss Cheese" plan, said Massey, when asked by Sen. Jeff Bingaman (D-NM) if companies would be able to circumvent it. "It is not a concern that I have," quipped Chairman Curt Hebert. He acknowledged, however, that bids made by out-of-state generators would not be subject to mitigation.

In the midst of the hearing, Feinstein announced she had been handed a document that instructed companies on how to use the Commission price-mitigation plan to "price gouge" in the market. It's a "step-by-step primer...that goes on and says exactly how to do it."

Hebert assured Murkowski (R-AK) and other committee members that FERC will remain "vigilant" in its efforts to weed out manipulation in the market. In fact, it intends to conduct "ongoing audits of selected sellers" in the California power market, Breathitt said.

Massey, however, told Sen. Gordon Smith (R-OR) not to expect much from FERC's "limited" Section 206 investigation into the reasonableness of power prices in states that make up the Western Systems Coordinating Council (WSCC). "...That investigation is so narrow that it holds no hope of any price relief in your state."

The Commission came under further fire for conditioning its offer of price relief on the California Independent System Operator (Cal-ISO) and the state's investor-owned utilities filing a regional transmission organization (RTO) proposal by June 1.

"If we are to get California on its feet," an RTO proposal is necessary, Hebert told the committee. While this "was not one of my favorite features" of the order, Breathitt acknowledged that she did vote for it. She said she did not believe that the Commission was demanding too much from California.

Massey noted that he would have voted for the RTO if it had been in a separate order, but he opposed linking the issue of price mitigation to the Cal-ISO and utilities submitting an RTO plan. If they fail to meet the June 1 deadline, the price mitigation order "self destructs."

The Commission is doing everything it can to help California, Hebert said, adding that it has issued about 40 orders addressing the state's energy markets since the start of the year. "FERC is acting responsibly, but the one thing it cannot do is go to California and build" the power plants, transmission lines and gas pipelines, he noted.

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