February 2003

Congress Directs DOE to Conduct SMD Study

(February 27)  Congress approved an omnibus spending bill that includes language directing the U.S. Department of Energy (DOE) to conduct a cost-benefit analysis of the Federal Energy Regulatory Commission's (FERC) proposed Standard Market Design. The anticipated completion of the report at the end of April coincides with the scheduled release of FERC's SMD white paper

The legislation states that members of Congress are "very concerned about the possible impact on regional electricity prices of FERC's proposed rule for Standard Market Design."  In an attempt to better understand SMD's potential impacts, Congress is instructing DOE to:

• Compare potential wholesale and retail electricity prices under SMD
• Provide details on how SMD could affect the safety and reliability of the electric system
• Describe the costs and benefits of SMD, including infrastructure development and investor confidence
• Report on how SMD could impact state utility regulation and retail customers

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

U.S. House Pushes Electricity Reform Bill

(February 19)  U.S. House lawmakers are making a new attempt to draft electricity reform legislation that would encourage -- but not require -- U.S. utilities to join regional electricity markets, according to Texas Rep. Joe Barton.

The measure is part of a broad energy bill to boost U.S. oil, natural gas and coal production and update power market rules. Barton said he hopes to have it out of committee and ready for a vote in the full House in April. It would differ in small, but important ways, from last year's version, which was derailed by bitter partisan differences over drilling in the protected Arctic National Wildlife Refuge in Alaska.

U.S. utilities that have balked at joining a regional transmission organization will be offered incentives to join one under the new legislation. The previous bill would have required utilities to join a power market despite some reluctance to turn over control of transmission assets.

Barton also said the bill may boost the equity returns for utilities willing to improve their transmission networks to ease congestion. The Federal Energy Regulatory Commission (FERC), which is overseeing the creation of regional markets, has proposed similar incentives.

The House energy bill will not try to stop FERC's proposal to create a standard set of rules for utilities to move power across U.S. regional electricity markets, Barton said. The FERC plan is bitterly opposed by Western and Southern lawmakers who contend the rules would also strip them of authority over local utilities and raise electricity rates.

Unlike his Senate counterpart, Republican Pete Domenici of New Mexico, Barton said he supports FERC's market redesign because it would ease congestion and hopefully cut costs for consumers. Domenici, who is head of the Senate Energy Committee, has criticized the FERC plan.

Source: Reuters

FERC Highlights Challenges Facing Natural Gas Market

(February 5)  The natural gas marketplace faces five major challenges, including the possibility of continuing price manipulation, the Federal Energy Regulatory Commission said in 2003 Natural Gas Market Assessment, the first report by its Office of Market Oversight and Investigations.

The report is intended to provide commissioners with an early warning on important issues and to signal the areas of greatest concern and vigilance for the commission, FERC staff said in a January presentation. The five challenges for the industry are:

• the deteriorating financial conditions of market participants;
• managing credit exposure;
• shaken confidence in price discovery methods, notably price indices published by trade press;
• a continuing need for efficient investment in infrastructure; and
• the continuing potential for manipulation.

Evidence "indicates that price manipulation has occurred in certain natural gas marketplaces, and may be continuing," the report said, adding, "it is likely that revelations of improper behavior will continue for some time."

"Without proper monitoring, the likelihood of successful manipulation could increase under the current tight supply conditions," FERC said.

Commissioners downplayed the problems facing the industry. Chairman Pat Wood said the issues are "manageable."

Source: American Public Power Weekly

FERC Approves Procedures To Encourage Utilities to Join RTOs

(February 5)  FERC Commissioners approved a new draft ruling to encourage transmission owners to join a Regional Transmission Organization (RTO) by December 31, 2003. The ruling would allow utilities an increase in their return on equity by certain percentages if they joined an RTO.

Basic point increases are as follows: a 50-point increase for passing on transmission operation to an RTO, a 100-point increase for building new power lines, and a 150-point increase for forming an independent transmission company. A utility could receive benefits through December 31, 2012, if it remained a member of the RTO.

Source: Federal Energy Management Program Monthly Update

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