In his parting shot as FERC chairman last week, James J. Hoecker issued one last plea to California Gov. Gray Davis to join with the Commission to enforce its comprehensive reforms for the state’s beleaguered power market: a $150/MWh soft price cap on wholesale sales, an emphasis on forward contracting by utilities, market-monitoring activities, and state participation in a regional transmission organization (RTO).
“The governor’s stated plans are unrealistic, and ours’ cannot be fully implemented without his help. [It’s] time to put down the guns,” said Hoecker, who was particularly critical of Davis’ decision last week to sign legislation that changes the governance board of the California Independent System Operator (Cal-ISO). The state took this action after FERC earlier had ruled that the make-up of the Cal-ISO board should be a joint decision involving both California and the Commission.
He called the legislation “another triumph of expedience over cooperation and understanding of the electric system,” and said that stacking the Cal-ISO board with state political appointees was an “unacceptable intrusion” into federally regulated market powers. This “action evinces a bald disregard for federal jurisdiction and a rejection of cooperative solutions” to the power crisis. “The state needs to work with, not against, FERC,” he said.
Since the legislation removes “any meaningful chance” for FERC and the state to negotiate the issue of Cal-ISO governance, Hoecker called on the Commission to “enjoin this technically flawed and unlawful usurpation of its authority.”
At the state level, “I urge state policymakers to reject the false illusion that going it alone will serve the interests of California consumers,” the outgoing chairman said. “Instead, policymakers from all western states should work together to maximize the benefits of the regional grid and regional market for all western consumers.”
Hoecker made these biting comments in a six-page “addendum” to his earlier concurring opinion on the Dec. 15 decision in which FERC attempted — via a number of reforms — to overhaul the out-of-control bulk power market in California (see NGI, Jan. 8,). He issued the written remarks last Thursday, his final day at the Commission.
As one of his last acts, Hoecker itemized a number of actions that he believes must be taken quickly: 1) the California Power Exchange (Cal-PX) must comply with the new pricing procedures in FERC’s Dec. 15 order, which prevent bids over $150/MWh from setting market prices (the Cal-PX is challenging the FERC order in court); 2) forward contracts must be negotiated as soon as possible, even if California’s utilities become bankrupt; 3) FERC must design new techniques for monitoring and mitigating market power; 4) investigation of outage events must be conducted; and 5) FERC must adopt “expeditious procedures” for reviewing prices on wholesale power transactions between Oct. 2, 2000 and the end of 2000 to determine if rates were “just and reasonable.”
Hoecker reiterated his support for temporary price caps in California [EL00-95, et al]. “I support a ‘time out’ from current wholesale prices, if they are part of a work-out plan that has a chance of garnering support from all parties and achieving an equal sharing of the pain.”
Even amid the turmoil of last week, as parts of the state were plunged into darkness and cash-strapped Pacific Gas and Electric and Southern California Edison faced possible insolvency, Hoecker said he was convinced that the utilities “can still be withdrawn from the brink” of bankruptcy.
But if they should enter Chapter 11, this “does not materially alter the need to act to devise a coordinated plan of action,” he noted. “We have reached this stage of growing crisis through a series of acts of short-term thinking and now the desperation is palpable. We cannot, however, keep moving from one failure to the next, with no agreed-upon objectives.”
One positive thing, Hoecker noted, may come from utility bankruptcy — “perhaps it will force the debtors, creditors and state officials to address the financial problems of utilities in a new light, without recrimination and posturing.”
But bankruptcy will not fix the state’s problems with its power markets, he said. “Chapter 11 will not recast or dispose of.California’s serious ratepayer and public-interest issues. It will not eliminate the power or responsibilities of regulators. It will not enable the system to create one additional electron. And…neither will it improve electricity services functions.”
Hoecker believes a “cavalcade of misjudgments and bad luck” is responsible for the “genuine economic and social crisis” that California finds itself in now. “The situation has deteriorated further since early January. Negotiations over long-term contracts [between utilities and suppliers] have reached impasse, notwithstanding many hours of tough talk in Washington and the Herculean (but ultimately inadequate) efforts of state legislators to buttress sagging utility creditworthiness and to find a sustainable retail rate compromise.” With the rolling blackouts in California last week, he noted the financial crisis in the state has escalated to a “serious threat to human welfare.”
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