Hoecker: Power Market Fixes Up to CPUC
Although FERC is pulling out the stops to address this summer's upheaval
in California's bulk power market, Chairman James J. Hoecker made clear
last week that most of the responsibility for correcting the dysfunctional
electric market lies with the California legislators and regulators who
On the natural gas side, the chairman also said those who are calling
on government to re-regulate gas prices are on the wrong track.
"I think the.....immediate solutions to [the power] problem lie
largely with the Public Utilities Commission in California and the governor,"
which have taken "some steps that I think are perfectly appropriate."
Citing the state's move to cap retail electric prices and order $100 million
in refunds to San Diego Gas and Electric (SDG&E) customers, Hoecker
said "I think they're beginning to do what they can to ameliorate
some of the pain."
Some critics have been quick to blame FERC and its deregulation of the
wholesale electric market for California's problems this summer, but he
countered that the state's legislators were the ones who decided in 1996
to deregulate the market and drew up the current system. "...[W]e
didn't decide that," he said in an interview with NGI.
SDG&E, as well as Southern California Edison and Pacific Gas and
Electric, are among those that are looking to federal regulators for answers
(See related report, this issue). In addition
to seeking a $250/MWh price cap on all bulk electricity sales, SDG&E
has taken out full-page advertisements in the San Diego Union-Tribune that
give the e-mail addresses of FERC, the White House, Energy Secretary Bill
Richardson and two California senators.
"I don't think that laying this issue...at the door of federal
regulators is an appropriate response." Nor should all the blame be
pinned on deregulation, Hoecker said. "Whenever you have price spikes
and the kinds of rate shocks that southern Californians have felt during
peak periods because of supply shortages, heat --- whatever the cause is
--- everybody's first inclination is to point the finger at deregulation
and say, 'I told you so.'"
He believes lack of generation capacity is at the root of most of California's
problems. "Fundamentally what California's got is a severe supply-demand
imbalance. They don't have enough generation."
Hoecker said he has asked FERC staff to "accelerate" its review
of California's bulk power market, which is being conducted in conjunction
with its overall investigation of the wholesale electric market nationwide
due to be completed by Nov. 1. "We've got our staff people on the
ground in California collecting data, interviewing market participants
and staying in touch with the governor and the attorney general,"
"When we ascertain whether some problems in the wholesale market
are responsible for this price volatility [in California], we'll try and
fix the structure of the market." But, he added, "I don't know
if we can provide any immediate relief" to the market.
In a recent letter, California Gov. Gray Davis asked President Clinton
for his help in encouraging the Commission to speed up it's probe of the
bulk power market. Hoecker, however, said he hadn't "formally"
been contacted by the White House about this yet.
Separately, Hoecker said a public outcry for Congress to re-regulate
natural gas prices in response to the higher retail bills expected this
winter would be a "mistake," even though he thinks $4 gas is
"It's much better for us to have a more stable price [that's] higher
than $1.60 and lower than the $4-plus we're seeing," he said. "I
think Wall Street and Washington ought to be focused on how to create a
sustainable price structure so that we don't have inordinately low"
prices that would discourage energy production, or "excessively high
gas prices" for end-users.
Hoecker thinks supply will be sufficient to meet demand. "With
the drilling resurgence in the Lower 48 and in Canada, and with the prospect
of Canadian supplies to the Lower 48, I think that the outlook for natural
gas is a very bright one."
And it's not clear that the projected increases in demand are coming
all that fast. Transcontinental Gas Pipe Line has "suddenly [said]
they are going to slow down the construction of [their MarketLink expansion]
project because the market hasn't matured yet," he noted.
Transco spokesman Chris Stockton confirmed the pipeline has decided
to take a phased approach to constructing its 700 MMcf/d, 150-mile MarketLink
looping project because some of the customers have requested that their
service dates be pushed back. Transco plans to file an implementation plan
for MarketLink at FERC on Sept. 15.
Hoecker also believes the "economics are right" for a gas
delivery system from Alaska, and expects the Commission to play a "key
role in trying to make this happen." Hoecker wouldn't say which of
the existing Alaska pipe proposals he prefers, noting it was much too soon
to identify which was in the public's interest. Also, producers in Alaska
haven't decided "which horse they're going to ride yet."
As for Hoecker's future at FERC, he acknowledged that his chance of
being confirmed by the Senate before his reign is up in October "doesn't
look very good." He noted his nomination has been pending before the
Senate Energy and Natural Resources Committee since last November. Hoecker
said he was not looking for another job. Regarding his prospects, "I
don't have an answer for you [now], but I might next month."
If Hoecker departs FERC, it would leave the Commission with two vacancies
as it heads into the critical winter heating season. For an energy industry
that thrives on "certainty," this prospect won't be "very
helpful," Hoecker noted.