Absent a reliable grid and “vibrant” wholesale power market, themovement towards open electric competition at the retail levelcould literally collapse, FERC Chairman James Hoecker told statelawmakers and energy producers yesterday.

“…..I fear that if the electricity system is perceived to beat risk [from a reliability standpoint] by American consumers, themovement towards competition will be allowed to languish and, infact, it may even be reversed,” he warned during a conferencesponsored by The Energy Council in Washington, D.C. This “would bea terribly wasteful detour from the competitive 20th century energymarkets that are now within our reach.”

Twenty-fourstates have opted for retail power competition sofar. But Hoecker said the efforts of these states “will mostcertainly fail in my estimation without a vibrant wholesale powermarket,” as well as a reliable grid. Given there have been “nodirectives coming from Congress” yet, he noted the Commission hastaken steps to further open the wholesale marketplace — such aspromoting the creation of regional transmission organizations(RTOs).

Citing the failure or inability of Congress and the powerindustry to tackle grid reliability, Hoecker believes the issuewill increasingly fall to FERC. “The Congress, even if it actedtoday on some pretty good reliability legislation before it, wouldprobably be unable to solve whatever problems might arise thissummer…..,” he said.

Although the Commission has “no express responsibility” forreliability now, “in the past [few] years…..we have been drawninto this area by industry, which is struggling on its own to meetthe challenge and now appears it will not be able to do so,”Hoecker noted. “Clearly the Commission will be called upon torespond to this critical need……In my remaining time aschairman, therefore, I think reliability will be a critical focusof Commission activity.”

The restructuring of the energy markets, according to Hoecker,”is occurring much too slowly, and [as a result] the cost toconsumers, to the economy and to energy providers may be verysignificant.” This should be of particular interest to the naturalgas industry, he said, given that “electric generation is where[the] most increment of natural gas consumption will come from” inthe future.

“No longer should anyone ask why this transformation ishappening or even what will happen. The salient question today iswhy is this taking so long,” Hoecker noted. “The problem in energypolicy formation that is not making the front pages today, like[gas] prices at the pump, …is [the] prolongation of electricrestructuring.”

Even though “market-defining, market-empowering federallegislation appears unlikely” in the near term for electricityrestructuring, Hoecker said “the need to implement competition ishere and we have to deal with it.”

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