Speaking prior to the launch of numerous state legislativeproposals yesterday designed to solve California’s power crisis,FERC Chairman Curt Hebert expressed disappointment with the speedand direction the state has taken so far in attempting to manageits predicament.

At the National Press Club in Washington, Hebert told reportersCalifornia had done little to resolve the basic supply-demandimbalance that threatens to leave the state’s populace in the darkon a daily basis.

He highlighted deficiencies in a significant number of areas notaddressed by the legislative actions yesterday afternoon.

“California needs to go back and revisit precisely where it wentwrong in the first place,” he said. Legislators need to “overturnthe rate freeze and allow retail prices to rise. Understandably[it’s] a politically unpopular decision but load serving utilitiesneed immediate relief and cannot continue to have their wholesalecosts, $12 billion and rising, trapped at the retail level.”

The artificial retail prices provide no signals to retailcustomers to conserve energy or shop for alternatives, which isdesperately needed in this time of supply-demand imbalance, headded.

The FERC Chairman also said utility bankruptcy must be “avoidedat all costs” because the bankruptcy judge will “focus mercilesslyon slashing costs and enhancing revenues with primaryresponsibility to creditors rather than to ratepayers.” Hepredicted the impact on ratepayers would be much more severe underbankruptcy than under a government-implemented bailout involvingrelaxation of the retail rate caps. Under bankruptcy, retail ratescould increase 100-fold, he said.

Hebert continues to have an “open mind” on solutions, but stillobjects to regional wholesale price caps and to any state plan tostep in and become transmission operator, generator or powerpurchaser for the utilities and the marketplace.

He also said there could be significant problems with Californialegislation that makes the board of the state’s grid operator apolitical arm of the governor with five handpicked members. That”could prove to be detrimental in the long run,” he said.”Politicized control of transmission will unfortunately detersuppliers from entering the California market and will discourageother states from building a large western RTO.”

Nevertheless, Hebert showed no intention to intervene at thispoint. “California officials cannot rely on a federal bailout or anintervention,” he said, reiterating that only California is “in aposition to effectuate short-term results” to put an end to thiscrisis, in which the state has faced an electrical emergency for 24straight days.

He confessed, however, that FERC probably should have stepped inearlier. “FERC might not be able to give quite as much deferencenext time because our ultimate goal is to make sure than consumersare protected in California and in New England, New York and Idahoand Louisiana.

“My hope is that FERC will put this immediate crisis behind itand focus on long-term structural relief. RTOs were lost in thisturmoil.”

California needs to follow the example of other regions andsubmit plans to be part of a regional transmission organization(RTO), something it has been unwilling to do so far despite FERC’sorder and its own continuing crisis, he said.

“I appreciate all of California’s hard work and thearound-the-clock effort to bail itself out of its predicament,”said Hebert. “However, I hope that California decides not to turnits back on competition and insulate itself from the rest of theinterstate grid.”

The state also needs to eliminate or reduce the role of thePower Exchange, said Hebert. “Eliminate the governmentintermediary. We certainly attempted to do that through our orderon Dec. 15. The mandatory PX should be eliminated. There’s noreason for a government run power exchange that has a preferredrole to private exchanges such as Automated Power Exchange.”

Hebert’s objections to wholesale price caps remain unchanged.Caps would exacerbate the problem, he said, restating the FERCstaff’s opinion in a recent report. “I am familiar with thegovernors’ concerns in the Pacific Northwest. I’m sympathetic tothose. But I think there are [other] solutions.. I stand by mycomments on price caps.” Nevertheless, despite his own opposition,Hebert said he would follow any law passed by Congress that ordersprice caps for the region.

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