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Hoecker: Power Market Fixes Up to CPUC

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 created it.

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 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," he noted.

"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 too high.

"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.

Susan Parker

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