April 2003

FERC Unveils Revised Version of Power Grid Rules

(April 29) The Federal Energy Regulatory Commission (FERC) has revised its controversial plan to revamp the U.S. power grid, adding major concessions to states in an attempt to allay the concerns of Southern and Western lawmakers.

FERC last year issued its so-called "standard market design" proposal, sweeping new rules to encourage U.S. utilities to combine their patchwork transmission grids into super-regional groups. So far, the FERC has approved operational grid groups in the Northeast and Midwest regions, but efforts in the Southeast and West have proceeded slowly due to state concerns.

FERC's "white paper" on its proposal, meant to quiet such criticism, adopts an "increasingly flexible approach to regional needs," the agency said. FERC said it will require regional transmission groups to conform to "core features" such as independent management and planning, but will allow states to decide timetables, budgets and how new markets will be structured and monitored.

Noting that most U.S. utilities have already made plans to join a regional grid group, FERC said it will require the remaining ones -- less than a dozen -- to do so. FERC also said that utilities are not required to divest their transmission assets into separate companies in order to join regional groups, although it has proposed substantial incentives for membership. Utilities can remain vertically integrated with both generation and transmission assets and still join a grid group, FERC said.

FERC exempted electric power cooperatives that serve only retail customers from that requirement.

The agency said it wants to finalize the rules by the end of the year.

Many Western and Southeastern states say FERC's plan is riddled with problems and could send their cheap power supplies flowing to other regions. FERC says the rules will lower electricity costs and untie shortage-inducing bottlenecks.

The Senate Energy Committee will debate its own plan to restructure the power grid. The U.S. Energy Department will also issue its own congressionally mandated study of FERC's rules. Republican Sen. Pete Domenici, the panel's chairman, has said FERC's plan goes too far, and has written a bill that requires the agency to give "substantial deference" to states.

Source: Reuters

Consumer Energy Council of America Says Both Competitive
and Regulated Markets Can Benefit Electricity Consumers

(April 29)  Utilities, regulators and legislators are being asked to model their ethics after those of the medical profession: First Do No Harm. That's the message from the Consumer Energy Council of America, which says that consumers can benefit from innovative products and services no matter what type of regulatory structure they live under.

The council, which brought together dozens of organizations representing utilities, determined that those states with deregulation must provide residential and small business customers with both stable and equitable rates. Standard services, or default prices, that guarantee such prices are therefore necessary—at least until markets settle and consumers adjust to buying power on the open market. Without such standard offers, it is unlikely that state legislators would approve deregulation, although the paradox that many jurisdictions now face is that the default price provided by incumbent utilities is set so low that alternative providers can't beat it.

The council says choice can be an option whether people live in fully regulated states or those that have been restructured.

The system, it adds, must find the equilibrium between allowing for competition and maintaining social order. That includes balancing fair prices with a clean environment as well as giving customers free choice but monitoring market abuses. Some customers may want to go green and the regulatory structure should be flexible enough to allow for that possibility.

In the end, the underlying attribute of an optimal electrical power system is keeping rates stable and fair, the group says. Residential and small business customers who have historically been provided such service should not now be subject to wide price swings. It's especially true because those users don't have the sophisticated hedging tools available to them that the larger industrials might have, the report says.

Source: Power Marketing Online

House Passes Energy Legislation, Electricity Title Emerges in Senate

(April 23)  As expected, the U.S. House of Representatives passed the Energy Policy Act of 2003 (H.R. 6), its comprehensive energy bill, by a vote of 247 to 175. The action will shift back to the Senate on April 29, when the Committee on Energy and Natural Resources will resume markup of its comprehensive energy bill.

Committee Chairman Pete Domenici, R-N.M., was expected to release a revised electricity title late last week. Sources said the Regional Energy Service Commission proposal in the previous draft is likely to be replaced by language to provide greater flexibility and authority to regional transmission organizations. The new staff draft probably will provide an RTO with the authority to: oversee or control interstate transmission facilities within a specific region, maintain the short-term reliability of its grid, monitor the electricity wholesale market within its region, and develop market mechanisms for identifying and managing congestion.

Also, a new section on service obligation likely will be added, sources said. That section is expected to include language asserting that a load-serving entity shall be entitled to use firm transmission rights or equivalent financial transmission rights to meet its current and reasonably forecasted obligation to serve.

Source: Public Power Weekly

FERC Plans to Revise SMD Proposal

(April 9) On April 1, Federal Energy Regulatory Commission (FERC) Chairman Pat Wood said that his agency is planning to produce a reworked Standard Market Design (SMD) proposal. Chairman Wood said that FERC may take different approaches to reach the "core platform" of SMD in response to widespread criticism received over the past year. Addressing the National Commission on Energy Policy at the U.S. Chamber of Commerce, Chairman Wood said that he intends to "articulate more clearly" how regional transmission planning and generation adequacy are to be areas for state regulation, while independent transmission operators, locational pricing, firm tradable transmission rights, and predictable and balanced market mitigation are core elements of SMD. FERC would like to release a reworked SMD proposal later this month.

Source: Electricity Restructuring Weekly Update, U.S. Department of Energy

Electric Competition Stalled in U.S.; Utilities Try "Virtual Choice"

(April 2)  Progress toward letting consumers choose their electric supplier has virtually ground to a halt in the United States, the latest edition of the Retail Energy Deregulation Index (RED Index) shows. As an alternative, however, experiments with "virtual choice" in regulated markets are picking up.

The fourth edition of the RED Index, issued by the Center for the Advancement of Energy Markets (CAEM), shows that California's well-publicized troubles, the Enron collapse and the financial crisis in the energy industry have all but halted progress on electricity competition in the U.S.

The report notes that Texas continues to lead the U.S. in electricity restructuring, while progress continues in Canada, England, Australia and New Zealand.

The stall in consumer choice of supplier, the RED Index says, has led some states to experiment with "virtual choice," allowing consumers to choose from a richer menu of options added to the distribution utility's traditional offerings. Oregon has taken the lead on virtual choice by offering mass- market customers a portfolio of regulated supply options that include renewable energy plans that rely on existing geothermal and wind sources, contributions to salmon-habitat restoration, the purchase of new wind resources and time-of-use rates. Other distributors have begun to offer weather-hedged or term products as well as green energy and metering options.

Eight states lead the U.S. in giving customers the option of supplier choice. Texas is ahead with a score of 69 out of 100, giving it a third-place ranking internationally. Pennsylvania, Maine, New York, the District of Columbia, Michigan, Maryland and New Jersey all have scores over 50.

Source: Center for the Advancement of Energy Markets

Congress May Halt FERC Transmission Plan

(April 1)  Congress may step in to strip the Federal Energy Regulatory Commission of its authority over regional transmission grids and return that power to the states, according to Senate Republicans.

The FERC has proposed sweeping new rules to encourage U.S. utilities to combine their patchwork transmission grids into regional groups, with the aim of boosting supplies and lowering consumer costs.

Republican Sen. Pete Domenici, the head of the Senate Energy Committee, said the FERC has overstepped its authority and must be stopped. If adopted, his alternative proposal would deal another major setback to the FERC's grid-building effort. The agency has encountered a swarm of protest over its rules from lawmakers in the South and West, who see them as a power grab.

While the FERC wants to form about five regional groups that it will oversee, Domenici recently proposed legislation to allow states to meld their own grid proposals "without FERC preemption," he said.

At a panel hearing, Domenici suggested lawmakers might draft an appropriations bill barring the FERC from pursuing its grid- building effort.

Domenici's proposal is at odds with an alternative plan backed by Sen. Craig Thomas, a Wyoming Republican, which would boost the FERC's authority over regional networks.

The energy panel's senior Democrat, Sen. Jeff Bingaman of New Mexico, said Domenici's proposal tips the balance too far in the direction of states' rights.

"(It) gives essentially all federal electricity authority to regulatory bodies to be appointed by the governors," Bingaman said. "This would raise serious constitutional issues," he said, and "might well add to the regulatory uncertainty in the market."

Source: Reuters

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