Utilities: FERC Mitigation Threatens Western Reliability

Recent steps taken by FERC to mitigate the price of power in California and the West threaten the reliability of the electricity supply in the region and could result in power supply shortages in many areas of the West, a group of Western utilities argued on Tuesday.

The Federal Energy Regulatory Commission in June extended its power market mitigation program across the western states 24 hours a day, seven days a week through September 2002 . But Puget Sound Energy, Portland General Electric (PGE) and Sierra Pacific Resources believe that the Commission's actions may have the effect of actually exacerbating the West's energy crisis.

The utilities said that they are being required to sell power into California at less than full cost under the price controls, thereby leaving their customers to finance the crisis-relief effort. "FERC's price controls effectively expand the energy crisis to all states in the West," said Tim Hogan, Puget Sound Energy's vice president of external affairs. "The crisis has already bankrupted a California utility, and FERC's recent actions, causing the cancellation of needed new generation, could now begin to haunt the entire West as a result of the well-intentioned but misguided efforts in Washington, DC."

"While it is appealing to think that price caps limit the cost of wholesale power to consumers, these controls unintentionally but dramatically shift the burden of California's poor planning to other states, like Nevada, that have planned properly for the future," said Walt Higgins, CEO of Sierra Pacific Resources. "Now, Californians can obtain power at the last minute at an artificially low price while states that have had the foresight to purchase more secure, longer-term power are left with higher bills."

"We believe FERC has changed the rules in the middle of the game," said Pamela Lesh, vice president of public policy and regulatory affairs at PGE. "FERC did not create a proper transition plan for those market participants who took prudent steps to plan ahead in accordance with the old rules."

PGE said that the impacts from FERC's recent actions could be minimized or reversed if the federal agency takes several corrective measures. Specifically, the utility said that FERC should base a price mitigation plan on prices in all affected states, not just California. While the utility said that it does not support price caps in general, at the very least, PGE believes FERC should set the cap on the highest cost generator, and highest cost fuel, in the 11 Western states. Another option would be to establish a proxy of $150 per MWh.

PGE also said that all market sellers should be allowed to justify their bids based on their costs. The utility also argued that the Commission should exempt demand reduction programs from the price mitigation cap and that out-of-state sellers should receive transmission costs and losses on top of the capped price.

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