Wood Seeks Clarity from Congress on Jurisdictional Issues

Federal jurisdiction over the formation of regional transmission organizations (RTOs), transmission rates and electric reliability may appear a little cloudy to some, but not to FERC Commissioner Pat Wood. Wood, who will become chairman of the Commission next month, said during a wide ranging interview with NGI, it's all spelled out quite clearly in Sections 211, 212 and 213 of the Federal Power Act.

"There's enough to get that done in there, [but] clarity would help," he said. "We had absolute clarity in Texas... But let's save three years in court. Let's go to Congress and have them look at it. The Republicans in the House and the Democrats in the Senate are all pointing in the same direction so it looks like there's a critical mass to [complete electric restructuring legislation]."

State regulators throughout the Southeast and Northeast have blasted FERC's July 12 orders to enter into mediations designed to establish regional RTOs. Many said it was an unacceptable break from the voluntary approach of Order 2000 that shows that FERC incorrectly assumes it has jurisdiction in these areas. Some said FERC's decision not to issue a notice of proposed rulemaking and take comments was particularly egregious. Others said it was not in the public interest and would have unexpected consequences, such as forcing "premature" retail deregulation or creating chaos in an otherwise orderly transition to a deregulated retail market.

Regarding the caustic responses from state regulators and utilities to the mediation orders, Wood said he would prefer to wait until all the comments are in before drawing any conclusions. "Let's see if they are opposing it or not. I have about four more weeks until I hear. In the settlement mediation procedure everybody postures until the final gavel drops. This is exactly how it's being played out.

"I think the agency already has lots of authority to get it done. Clearly construction of a wholesale market is what Congress told us to do nine years ago... We have to show them we are going to do what they told us to do, which is get this wholesale market structure set so that customers can start getting benefits from generation competing with generation. It may not be posturing [on the part of the state regulatory commissions], but I will find out."

Wood said if FERC's mediation plan doesn't work, "we'll try another one. But I think time is running out."

"We're not jurisdiction grappling [here with the states]," he said. "We're just trying to get things clarified for people who want to invest in transmission. We got probably half the transmission dollars in the country going to Texas because it's pretty darn clear now how you get your money back. If you tell people how they are going to get their money they will follow with their investment. I think the pipeline experience was a great one on that; the rules were pretty clear up front from FERC."

Wood said Sen. Jeff Bingaman's (D-NM) white paper on electric restructuring was very similar to President Bush's "vision" in his energy plan. "Congress needs to deal with interconnection issues," said Wood. "The transmission siting issue [is different]... I do think that states are up to the challenge if you tell them what you need. If you tell them we have a transmission constraint that goes through West Virginia that blocks Virginia from participating in the Midwest [market] and we need to beef that up, I think the West Virginia commission, the Virginia commission and the Ohio commission would be up to the task. If Congress wants to take that issue up, fine.

"I think some more basic things include having Congress clear things up on [FERC's jurisdiction on the formation of] these RTOs. I would rather spend the next three years setting up markets than fighting in court. If Congress said 'If you didn't have it, you do have the authority now to make these RTO's work and get them set up,' then great. That would save me from having to worry about going to the Supreme Court. I welcome any clarity. For those that are interested in speedy resolution, I do think a Congressional mandate needs to be there. But I think, quite frankly, we have the mandate today to do it and I intend that we will do it at this Commission as soon as possible."

Setting Up Markets

An early item on the Commission's agenda under Wood's chairmanship will be revisions to procedures for opening up markets and authorizing participation for individual marketers. Wood said the other commissioners are in agreement that revisions are necessary and may take the form of a notice of proposed rulemaking or a policy statement. In the past FERC was interested in expanding markets and "it appears to me they granted authority to anybody who walked in with a petition."

"My goal is to get pre-conditions set so that market-based authority really is irrelevant; If the infrastructure and rules are sufficient; if there is excess pipeline capacity and sufficient investment in transmission so there are not localized markets; if there is sufficient fuel infrastructure to bring in natural gas; and if you have good rules that make it pretty clear how this will all work on a day-to-day and hour-to-hour basis; then it might not be perfect, but you have a market."

"A deregulated monopoly is the worst of all outcomes. That is when you have localized market power, insufficient supply and no transmission investment. This played a big part in what happened in California."

Wood suggested that a market power test needs to go beyond just determining that an applicant doesn't have more than 20% of the market. "The second question might be whether you are playing in a market that has the basic infrastructure and rules in place. If the answer is yes, then that's fine." Wood said the Commission would have to review markets periodically to make sure the conditions still hold and that participants haven't merged to corner more than 20% of the market.

If the market structure deteriorates, "then we'd have to go back to old regime or some version of mitigation. But based on what we've been through here, I'd rather never do mitigation again. It's hard for a market guy like me to come in and have my first vote be that," Wood said, referring to the westwide market mitigation order FERC issued in mid-June (see Daily GPI, June 19). "But, you've got to put out a fire with any bucket of water you can grab."

As to that order Wood said the Commission would also act in early fall on fine-tuning. He advised there would have to be changes to accommodate the fact that the Pacific Northwest, with a winter peak, is tied to pricing for California, which has a summer peak. The mitigation order "was clearly done to get through the summer in California," Wood said, adding that the Commission was committed to rehearing in September or early October.

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