Power suppliers should keep their eye on the “transparency and fairness” of state-level power solicitation processes in the near term, FERC Chairman Patrick Wood last Tuesday told a gathering of power supply officials at the Electric Power Supply Association’s (EPSA) fall membership meeting.
“I’m thrilled that states have moved in that direction — that they want to have good, open solicitations,” Wood said in response to a question following his prepared remarks at the EPSA meeting in Washington, DC. “If they’re the best deal for the customer, they ought to win,” Wood said in reference to power suppliers.
But that doesn’t mean that FERC has a knee-jerk opposition to an affiliate being chosen by a utility after a solicitation process. While FERC has signed off on a couple of utility-affiliate transactions, “we’ve looked at them really, really hard because the incentives are not as clear between a utility and its affiliate to do the thing that best benefits the customer, as it is when you have just an open, arm’s length third party-type transaction.”
The process utilized by utilities to solicit power supply proposals has received a closer look from FERC this year. Over the summer, the federal agency held a technical conference exploring whether the agency’s so-called Edgar policy is adequate to ensure that the most competitive power procurement choice is being made when utilities buy from their affiliates.
“I think your worst days are past,” Wood said when asked to detail what he sees as looming threats to power suppliers.
But one industry representative at the conference pointed out that the power industry continues to feel the pinch of extremely stringent credit parameters set out by Wall Street. Wood said that with respect the “overreaction to the Enron debacle,” the pendulum has not yet swung the other way in terms of measuring risk in the power sector.
The FERC chairman also noted that reactive power is getting a closer look at the Commission Wood said that reactive power has come to the forefront as a key issue in terms of maintaining the electrical grid’s reliability, with the issue having reared its “ugly head” in Ohio during last year’s historic blackout.
He noted that several generators in the Midwest Independent Transmission System Operator (MISO) and PJM Interconnection have filed cost-based tariffs to get reimbursed for their reactive power when they supply it, within conditions “and then those flange up into the MISO and PJM tariff, which says, ‘Here’s when we’ll buy power from you.'”
Wood thinks that “we’ll start off as cost-based reactive power recompensation for non-utility generators and then I think that could move into a tradeable commodity, just like an ancillary service. It’s just different. It’s inherently local, but it may be a harder one to make into a really competitive, tradeable commodity. It may just have to be provided locally at cost.”
Meanwhile, Wood also expressed some concern that the apparent renewed focus on Social Security and taxes in Washington, DC, could distract from congressional action on a pending comprehensive energy bill on Capitol Hill. “I think that may, unfortunately, keep the shot at an energy bill [from] coming back,” he told reporters. “I hope I’m wrong there.”
But a Washington, DC-based legislative expert recently said that the election results of Nov. 2 bolster the chances that comprehensive energy legislation will get through Congress next year.
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