The Federal Energy Regulatory Commission yesterday announcedfive “practical steps” that it will take this summer to “alleviatereliability stresses” on the electric transmission grid duringperiods of heightened demand. Commissioner Curt Hebert Jr.,however, questioned not only the effectiveness of the measures, butalso FERC’s motive for proposing them.

“I suspect the real reason for the Commission’s enhancedinterest [in reliability] is politics and public opinion,” he said.”All today’s notice actually accomplishes is to announce that theCommission is doing its job, and deflect blame for any disruptionsthis summer to Congress.”

If brownouts or blackouts occur this summer, the “blame shouldbe directed at this Commission for not taking decisive action lastsummer and two summers ago…..to promote capital investment in ourenergy infrastructure and new entry into emerging competitivemarkets,” Hebert said during Wednesday’s regular Commissionmeeting.

“Frankly, I think to call this document…..political in natureis outrageous,” countered Chairman James J. Hoecker. “This agency,which barely spoke of reliability…..in the last couple of years,has done more to promote it than at any time in its history. Toblame the FERC for reliability problems is kind of like blamingCosta Rica for the Cold War.”

The heated exchange between Hebert and Hoecker comes one weekafter Sen. Frank Murkowski (R-AK) strongly criticized theCommission for not punishing power utilities that stole power fromthe grid last summer, which triggered reliability problems in theMidwest. He said FERC already possesses the authority to takedisciplinary action. But if it doesn’t, he invited the Commissionto ask Congress for it.

“…..[T]here’s no need to await further action by Congress,”Hebert agreed. “The Commission already has all the authority itneeds to effect real reforms that will promote reliability andefficient electricity service.”

But he doesn’t think the five initiatives announced by FERC,which are intended to promote supply, enhance deliverability andtemper generation demand, will do much to improve reliability thissummer or beyond. Specifically, the measures include the following:

1) Permit businesses that have on-site generation to serve theirown needs or use their power as a backstop to purchases from thegrid, and allow them to sell any excess power to non-affiliatebuyers without first notifying FERC of their intent. Also, thebusinesses could sell power at market-based rates;

2) Waive prior-notice filing requirements for public utilitiesseeking to amend their power sales contracts with wholesalecustomers to include load-reduction agreements this summer. Undersuch demand-side arrangements, FERC says public utilities and theircustomers will be able to negotiate “mutually beneficial agreementson short notice should the need arise during periods of peak summerdemand;”

3) Allow costs related to demand-side arrangements to berecovered under cost-based pricing formulas. FERC believes thiswill eliminate any disincentive for utilities and their customersto rely on such arrangements as a source of supply duringgeneration shortages;

4) Remind transmission providers to periodically update theirfigures for capacity benefit margin (CBM) and transmissionreliability margin (TRM) to accurately reflect estimates of theiravailable transmission capacity as summer nears; and

5) Direct the Commission staff to be available to respondquickly to regulatory questions or suggestions about how FERC couldfurther the reliability of the transmission grid in both the shortand long term.

Hebert doesn’t believe these represent “decisive action” byFERC. For example, “my personal opinion is that offeringmarket-based [rates] to the owners of on-site generation willintroduce precious few megawatts into the interstate grid,” hesaid, referring to the first measure.

If FERC is really serious about increasing the generation supplyfor this summer, “it should act immediately to withdraw all pricecaps on generation markets,” Hebert noted. Moreover, the Commissionshould give transmission providers an incentive to providereliable, efficient service. It “could and should tie earnings andprofits to reliability-based and performance-based criteria, suchas the number and duration of service interruptions, customersatisfaction and throughput,” he said.

“What’s our answer to reliability? Our answer is Order 2000,”which calls for the creation of regional transmission organizations(RTOs) nationwide, said Hoecker. In the shorter term, “we are doingour part to ensure generation adequacy” by removing impediments todemand-side arrangements, reminding transmission providers toappropriately assess their reliability needs and to post accurateestimates for available transmission capacity, he noted.

Grid reliability is an “absolutely critical” issue that’s notgoing to go away anytime soon. “The level of bulk power sales hasincreased 400% in the last four years. There are new marketentrants coming into the market, new kinds of sales andtransactions that are putting enormous strain on [a] system [that]frankly wasn’t built to handle the commercial traffic that it nowmust handle,” Hoecker said.

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