FERC Aid to Western Markets Omits Price Relief

In what was probably its most comprehensive decision on California since its famed Dec. 15 order, FERC last week announced a series of actions designed to boost energy supply, reduce demand and alleviate the delivery bottlenecks that continue to bedevil the wholesale electricity and natural gas markets in the state and overall western region.

But noticeably absent from the order, which spelled out both immediate and proposed actions, was any mention of what California and western electric customers want most - some form of temporary price relief. Commissioner William Massey was the lone dissenter on the order due to this omission.

By a vote of 2-1, the Commission moved to streamline regulations to encourage greater production and sales of power from qualifying facilities (QFs) and on-site generators, and offered incentives to retail and wholesale customers to lower their consumption of electricity. It also extended rate and other economic incentives, such as a higher return on equity (14.5%), to utilities and gas pipelines to provide additional capacity for the California market in the short term. Moreover, FERC said it would reallocate its staff resources to expedite the certification of gas pipeline projects to California and the West [EL01-47].

Effective immediately on the electric side, the Commission said it will require the California Independent System Operator (Cal-ISO) and transmission owners in the West to file a list of "grid enhancements" that can be completed in the short term; extend and broaden the temporary waiver of operating and efficiency standards and fuel-use requirements for QFs in the West; waive prior-notice requirements and grant market-based rate authority for wholesale power sales from on-site generation facilities of businesses in the West; and authorize retail customers, where allowed by state law, and wholesale customers who cut their energy consumption to resell the load reduction at market-based rates. It also plans to hold a conference in the spring with hydro licensees, resource agencies and others to discuss ways to increase generation capacity.

In addition to boosting supply, the Commission seeks industry comments on a proposal to award higher rates of return on equity for projects that can significantly increase transmission capacity on constrained routes and can be in service by June or Nov. 1 of this year. Moreover, it proposes higher rates of return for system upgrades that involve new transmission routes and can be in operation by June 1, 2002 or Nov. 1, 2002.

To further promote investment in the transmission infrastructure, FERC also is considering offering a 10-year depreciation for projects that can boost transmission capacity in the short term, and a 15-year depreciation for upgrades involving new rights-of-ways that can be in service by Nov. 1, 2002.

On the natural gas side, the Commission is seeking comment on proposals to waive the blanket-certificate regulations to increase the dollar limitations for facilities under automatic authorizations to $10 million and for prior-notice authorizations to $30 million; waive the blanket certificates for portable compressor facilities to expand pipeline capacity; AND offer rate incentives to pipelines to build projects that will provide additional capacity by this summer on constrained California-bound systems.

As for hydroelectric projects, FERC has asked all hydro licensees to examine their projects and propose any efficiency modifications that may contribute to increased power generation supplies. Hydroelectric facilities account for about 40% of the power generated in the Western Systems Coordinating Council.

As part of its decision, FERC said it intends to hold a one-day conference on April 6 in Boise, ID, with state regulators and other state representatives on the issue of price volatility in western energy markets. The Commission has asked the energy industries to submit comments on its proposed actions by March 30.

Despite all of these actions and proposed initiatives, Massey insisted the Commission's decision fell short. "I want us to do everything that we can.....that is reasonable and rational, but this order makes errors of omission and commission from which I must dissent," he said. This order "focuses on quick fixes to help narrow somewhat the gap between supply and demand in the West. [But] I don't believe that anyone sitting at this table seriously believes these measures will close that gap substantially."

He was especially critical of the order's absence of immediate price relief for western electric customers. He called on the Commission to establish as part of the order a Section 206 investigation into the "appropriateness of effective price mitigation for the western interconnection until the longer term solutions are in place and the [wholesale electric] markets operate normally."

Such an investigation should explore the "conditions in the western interconnection [that] are forbidding competitive market operation, how long those conditions are expected to last, and what the Commission can do to provide immediate price mitigation," Massey said.

But Chairman Curt Hebert countered that the order was not intended to address short-term price relief. That issue, he said, was tackled in a March 9 order that put 13 California power suppliers on notice that they may owe refunds of up to $69 million for electricity overcharges during the month of January.

This decision was designed to "squeeze every megawatt of power" out of the California market, Hebert noted. The Commission is doing "everything in its power" to make that happen.

Massey pointed out that a number of the actions taken by FERC in last week's order weren't new. "Many of these same actions were authorized by the Commission last year in our May 2000 reliability initiative," he said.

Susan Parker

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