December 2002
FERC Promises Flexibility in SMD Rule
(December 19) Responding to widespread and extremely diverse opposition to its proposal
for a standard market design (SMD) applied uniformly across the entire U.S. electric
transmission system, the Federal Energy Regulatory Commission (FERC) has indicated that
its final rule on SMD could be delayed from its initially stated target date of January
2004.
FERC now says that the final rule will allow for a measure of regional flexibility,
answering various state critics who complained about the proposal's one-size-fits-- all
approach. FERC says many of these concerns arose from that fact that the notice of
proposed rulemaking did not go into great detail about regional aspects.
FERC's SMD staff said it now does not expect FERC to be able to issue a final rule
until the summer of 2003, meaning the original January 2004 implementation date is
unlikely. "We anticipate that the Commission may not see full implementation of SMD
in all regions of the country at the same time," the staff memo says. Instead, FERC
indicates that implementation of its proposal, announced in July, could be phased in
regionally rather than imposed nationally. FERC also indicated it would consider more
flexibility than suggested to account for regional differences, especially conditions
unique to the Western U.S.
Source: EnergyCentral.com
EPA Critiques FERC’s Standard Market Design Proposal
(December 18) Electricity experts at the U.S. EPA fear a new Federal Energy Regulatory
Commission plan to overhaul power markets could inadvertently increase emissions if
regulators don't carefully draft the new rules with air quality protection and distributed
generation barriers in mind.
According to documents filed with FERC, EPA warns that only a careful rewrite of the
so-called standard market design (SMD) reform effort to bring power markets under a single
set of national rules will produce a positive environmental outcome. The agency thus wants
regulators to adopt a number of policies backed by EPA's Office of Atmospheric Programs,
including a "well designed" demand response mechanism, language that eliminates
barriers to distributed generation and a framework that considers alternative transmission
approaches in concert with traditional power line construction.
Intermittent resources such as wind power, for instance, often face stiff penalties
associated with energy imbalances far in excess of the cost of replacement power when the
wind isn't blowing, EPA said. Replacing this apparent imbalance would "eliminate a
substantial undue economic barrier to the development of benign renewable resources,"
the agency wrote.
On the negative side, EPA believes FERC's proposed demand response policy, which makes
it easier for high-emitting backup diesel generators to run during times of supply crunch,
could have serious environmental consequences if the commission doesn't restrict how
regional transmission organizations (RTOs) manage backup power. Generators could be in a
position to take advantage of demand response programs and ignore state air pollution
policies if FERC keeps its proposed rules in place, EPA notes, allowing diesel sources
that emit nitrogen oxides at higher rates than conventional peak power plants to run
unchecked.
Last, EPA asked FERC to include in the final SMD rule, due sometime next spring or
summer, a provision that makes RTOs develop and maintain databases to track environmental
attributes of all generators in a given region. EPA would model this system after ISO-New
England, which recently implemented its New England Generation Information System to
support state environmental initiatives.
Though critical in some respects, EPA's review of the SMD stands in stark contrast to
hostile feedback sent recently to the commission by states and federal lawmakers. A first
round of public comments on the plan ended in November, with many state officials, public
utilities and consumer groups demanding the commission rescind the plan lest it face a
drawn out legal battle over the scope of FERC's jurisdiction.
Source: EnergyCentral.com
22 States Ask FERC to Abandon Standard Market Design Proposal
(December 9) More than 220 parties made filings by the Nov.15 deadline for comments on
the Federal Energy Regulatory Commission's Standard Market Design, FERC's grand plan to
standardize electricity markets across the U.S. Among those filings are joint comments --
signed by more than 200 parties, including Washington, Oregon, Idaho, California and 18
other states--asking FERC to withdraw its SMD proposal because it overreaches the
commission's congressionally delegated authority over wholesale power rates.
"The most profound aspect of the commission's proposal is its assertion of
jurisdiction over major elements of retail electricity service," the joint filing
reads in part. "It amounts to a transfer of authority to the commission and a loss of
control by the states over, among other things, demand forecasting, resource planning,
demand-side management and marketing, and the ability to ensure that transmission is
available to meet retail service obligations."
The filing says FERC is "proposing to supplant state policies that protect retail
consumers with new and untried institutions and rules, implementing a new and untested
market theory" that subordinates the retail system to the perceived needs of the
wholesale system. In so doing, FERC "has lost sight of who should be the ultimate
beneficiaries: end-use consumers--not generators who have no public service obligation and
whose interests are solely commercial."
Besides withdrawing the NOPR, the joint commenters ask FERC to refrain from asserting
jurisdiction over the transmission part of retail sales, as well as over power supply
planning and demand response functions. In addition, FERC should not mandate the transfer
of transmission operations from vertically integrated utilities to independent
transmission providers and should "focus on improving the wholesale electricity
market through better monitoring and better enforcement." The commission should also
return to voluntary regional transmission system discussions and, before implementing any
new program or market designs, subject them to a "rigorous cost-benefit-risk-analysis
that measures net benefits to end-use consumers."
Public utility commissioners from California, Idaho, Oregon and Washington signed the
letter, along with commissioners from such states as Arkansas, Kentucky, New Mexico, New
Hampshire and South Dakota. Signatories also included the attorneys general from Nevada,
New Mexico and Washington; the Colorado Office of Consumer Counsel; the Utah Committee of
Consumer Services; and the Public Utility Law Project of New York.
The Washington Public Utility District Association signed the comments, as did the
Public Power Council, Seattle City Light, Tacoma Power and Northwest Power Works, a public
utility coalition whose membership includes a number of Northwest municipalities, PUDs and
businesses.
Source: EnergyCentral.com
Edison Electric Institute and National Association of Regulatory
Utility Commissioners
Issue Joint Statement Calling for Wholesale Electric Market Rules
(December 9) The National Association of Regulatory Utility Commissioners (NARUC) and
the Edison Electric Institute, an association of investor-owned utilities released a joint
statement during NARUC's annual convention in November, noting that:
"The electric power industry is now facing a financial crisis perhaps more acute
than any in its modern history with the loss of billions of dollars in market
capitalization among investor-owned electric companies. This financial distress is not
occurring in isolation, but rather reflects broader market conditions and investor
attitudes. Relying on the great strength and flexibility that U.S. capital markets
provide, everyone affected by this critical industry must work together to rebuild
consumer and investor confidence by creating more stable, transparent and efficient
electricity markets.
"The current market turbulence presents a very real and tangible threat to the
viability of the industry and the reliability of the nation's electrical system. In late
2002, all but a few electric power providers have found access to capital increasingly
costly and enormously difficult to acquire. Investors and customers lack confidence in the
financial health of energy providers."
" . . . This is a crisis affecting not just companies and their
shareholders-customers themselves and the U.S. economy are at risk if the industry cannot
build out or even maintain its generation and delivery infrastructure.
The statement went on to suggest that:
"A potential path to create certainty lies in crafting a clear set of rules
governing wholesale electricity markets . . . A properly designed wholesale market could
also help revitalize flagging energy markets and bring liquidity back to the sector.
"As leaders of our respective organizations, we agree that a Federal Energy
Regulatory Commission wholesale market design should be forged only after the
consideration of input from all appropriate stakeholders, and then on a measured timetable
that will allow for a reasonable transition that also accommodates regional differences.
Equally important, the Commission should fashion a rulemaking process that fosters a
robust regional approach toward market design, planning and implementation.
"Likewise, the FERC's final rules should respect regional differences and should
not impose a one-size-fits-all template across all regions of the U.S. Moreover, state
regulators and policymakers must play a strong and visible role in both designing and
implementing any new market design . . . "
Source: Edison Electric Institute Press Release
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