FERC Explores Extending Market Mitigation Across the West

If the Federal Energy Regulatory Commission opts to extend a California-type, market-based lid on real-time power prices throughout the western region, the plan could be operational a little more than a month after California's market mitigation plan kicks in, FERC General Counsel Kevin Madden told NGI last week.

"We're trying to mirror the mitigation proposal that we had in California," Madden said, noting that if a plan to that effect emerges from the Federal Power Act Section 206 investigation that FERC initiated when it issued the California order, the West-wide mitigation could be effective and subject to refunds by July 2. The California plan kicks in at the end of May --- if California files its RTO plan by then (see NGI, April 30).

FERC issued the order for a 206 investigation of real-time transactions in markets throughout the Western Systems Coordinating Council (WSCC) when reserves dropped to 7% on April 26, and called for comments within 10 days. "Based on those comments the Commission will decide what they ultimately want to do with respect to a western market mitigation plan." Madden pointed out that the clock started ticking when the FERC order was published in the Federal Register, so that 60 days after that date refunds could be ordered based on whatever scheme results from the investigation.

Critics have complained that limiting the time period to emergencies leaves out a large part of the market. Washington State Attorney General Christine Gregoire filed a letter with FERC Monday saying the Commission should extend its power price mitigation through the West "at all times, not just when supplies are tight." She also said the federal agency should look into the high prices for natural gas.

Madden defended FERC's initiation of the variable power pricing limit in California only on real-time or spot market transactions, advising that earlier Commission actions had been aimed at moving most power purchases in the state out of the spot market. "The aim of our December order was to narrow the spot market to about 5%. Based on what I've seen today, I don't think they're going to be able to reach that even with new generation they've added and additional contracts they've entered into." He estimated California would still be picking up about 15% to 20% of its power needs on the spot market.

Regarding conditioning the California plan on the state's filing an RTO proposal, Madden noted FERC had sent letters out last week to California officials offering FERC staff's help in putting together their RTO filing.

Madden also said FERC has not ignored the rest of the country while it has been dealing with the western situation. "We've acted on most of the RTO filings across the United States: we've handled the South; we've acted on the Midwest; and we have a plan to address PJM, New England and New York, which will be offered very soon. The chairman and the commissioners are very serious that the RTOs be up and running by the December deadline that we had established."

Besides dealing with the RTOs, the Commission has made good progress on Chairman Curt Hebert's goals of improving the natural gas infrastructure by accelerating action on certificate filings, Madden said. He pointed out that the Commission approved a recent Kern River expansion application just three weeks after it was filed. The Commission is looking at a number of other applications to carry gas supplies west and is developing a plan to ensure the certificates are expedited.

Regarding natural gas prices, Madden noted the Commission only has authority over sales for resale by gas pipelines, LDCs and their affiliates. Limiting some prices in the market while others run free has been tried --- unsuccessfully, for instance in the 1970s when gas prices in the interstate markets were controlled and intrastate market prices were uncontrolled. That simply meant there was plenty of intrastate gas available while the interstate market suffered a shortage. FERC does have authority over pipeline tariffs --- and could look at, for instance, if a tariff needs improvement --- and has allowed transportation prices in the secondary market to run uncapped. The latter is under challenge in several cases currently before the Commission. FERC has scheduled a public conference to explore pipeline capacity and natural gas prices in the western market for May 24.

The chairman also is pushing for action on adding hydroelectric generation in the West, Madden said, noting the Commission had approved two projects in the Idaho Power case last week.

On the electric side, "it's very clear that in addition to the RTOs, we need infrastructure on the electric side. It's my particular view that if the states aren't willing to act on siting of transmission that the Commission be authorized to act to site transmission facilities in order to ensure that we have a reliable, safe, competitive transmission infrastructure. One of the things we talked about in regard to the RTO filing due June 1...is that transmission affects the pricing of generation. For example, if you have a bottleneck or congestion on transmission lines, that will affect the pricing of generation in that particular market."

Madden used the example of the critical north-south Line 15 in California, "which has been a bottleneck for over 15 years and nothing has been done," and the impact it has had on power prices. Transmission siting is a key element in evening out prices, "not only in that market, but in all markets in the United States." FERC currently does not have the authority over transmission siting, but there are several bills in Congress that would allow the federal agency to move in if the states do not act within a certain time period.

The Commission also has increased its monitoring and auditing with a more concerted action plan that addresses issues relating to non-compliance with tariffs and other market behavior. Madden said his Office of General Counsel has increased its staff working in this area by five attorneys, and added another five attorneys on the advisory side of market problems.

In the meantime, under Chairman Hebert's leadership "our agenda for the past 100 days has been quite full." The Commission has eliminated a backlog of between 400 and 500 cases, and "we will continue to have a full agenda, at the same time dealing any matters affecting the western market."

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