John & Hengerer's summary of today's Commission meeting.

 
 February 23, 2000




MEMORANDUM

TO: Interested Clients

FROM:  John & Hengerer

RE: Commission Meeting -- February 23, 2000

At today's meeting, the Commissioners approved the consent agenda and 
discussed the following items.  

HYDRO AGENDA
Public Utility District No. 1 of Okanogan County, Washington, Docket No. 
P-10536
This draft order rescinded the hydro license issued to Public Utility 
District No. 1 of Okanogan County, Washington (Utility District) after the 
National Marine Fisheries Service (NMFS) conditioned the license on 
construction of a fish ladder that would have rendered the proposed project 
uneconomic.  Commissioner Hebert moved the item to the discussion agenda to 
highlight the difficulties incurred in hydro licensing proceedings due to the 
conditioning authority granted to certain federal agencies, such as NMFS.  
Because such agencies possess the authority to impose costly environmental 
conditions, Commission Hebert stated, they essentially hold veto power over 
project applications.  Commissioner Hebert urged federal agencies to weigh 
potential public benefits before imposing costly environmental conditions 
that doom proposed projects.  

Avista Corporation, Docket No. P-2058
In this draft order, the Commission granted a hydro license to Avista 
Corporation.  Chairman Hoecker moved the item to the discussion agenda to 
champion the use of alternate licensing procedures and applaud the parties 
for negotiating the settlement approved by the draft order.  Avista began 
negotiating for the license in 1996 and eventually reached a settlement with 
26 stakeholders.  According to Chairman Hebert, such negotiations maximize 
benefits, reduce application costs, and set a positive example for other 
parties to follow.  Although the other Commissioners generally echoed 
Chairman Hoecker's praise, Commissioner Hebert criticized the draft order for 
not quantifying the environmental benefits of Avista's proposed project.  

 ELECTRIC MATTERS
New England Power Pool, ISO New England, Docket Nos. ER00-984, et al.
Price caps on the ISO's Operating Reserve and Operable Capability markets 
were extended by the Commission in this draft order, Commissioner Hebert 
dissenting.  Both caps expired on December 31, 1999.  The cap on the 
Operating Reserve Market was extended until June 30, 2000, or until the ISO 
submits a market redesign plan to correct market flaws.  The cap on the 
Operable Capability Market was extended until February 29, 2000, after which 
the market will be terminated.  According to the ISO's filing, which was 
approved in this draft order, the Operable Capability Market duplicates other 
ISO markets and is no longer needed.

Commissioner Hebert dissented and moved the item to the discussion agenda to 
express his disapproval of price caps, both in general and in this particular 
proceeding.  In general, Commissioner Hebert believes that price caps remove 
the natural incentives created by a competitive market.  In this particular 
proceeding, Commission Hebert argues that supposedly temporary price caps 
have become a Acrutch@ relied on by the ISO.  Moreover, Commissioner Hebert 
does not believe that the ISO market is flawed and contends that the ISO has 
failed to illustrate the existence of any flaws.  For these reasons, 
Commissioner Hebert would not have extended the price caps.

Regional Transmission Organizations (Order on Rehearing), Docket No. RM99-2 
In this draft rehearing order, while making relatively minor clarifications 
and revisions, the Commission unanimously affirmed the policy decisions 
outlined in Order No. 2000.89 FERC & 61,285 (1999)  Issued in December 1999, 
Order No. 2000 outlined the Commission's policy with regard to RTO formation 
and adopted regulations governing the filing and review of RTO proposals.  
This draft order affirmed the voluntary and flexible approach adopted by 
Order No. 2000, as well as the RTO functions and characteristics outlined in 
that order.  

However, the draft order does include a number of relatively minor revisions 
and clarifications.  Specifically, the draft order:  (i) denies requests to 
phase out passive ownership of RTO facilities by transmission owners, but 
clarifies that passive owners must not interfere with day-to-day RTO 
operations; (ii) clarifies Section 205 tariff filing rights by reiterating 
that RTOs should have control of their own tariffs, while transmission owners 
should determine their own return on equity; (iii) incorporates Order No. 
2000's audit requirements into Commission regulations, while ruling that the 
both an RTOs ownership and governance structures are subject to audit; and 
(iv) clarifies that public utility compliance filings must specify what 
efforts were made to include RTO participation by public cooperatives.

In approving the draft rehearing order only two months after the issuance of 
Order No. 2000, the Commission hopes that the ongoing collaborative process 
will be able to focus on the basic elements of RTO formation, rather than on 
the contentious issues raised in the rehearing requests.  Order No. 2000's 
collaborative process began this month and is scheduled to run through April 
2000.  Public Utilities not currently participating in a regional 
transmission entity are required to make a compliance filing by October 15, 
2000, while those utilities that are already a part of a regional entity must 
make a compliance filing by January 15, 2001.

Midwest Independent Transmission System Operator, et al., Docket Nos. 
ER00-448, et al.
In this draft order, the Commission unanimously (Commissioner Massey 
concurring) voiced its support for the binary RTO model proposed in this 
proceeding, but declined to issue the requested declaratory order until a 
final proposal is filed.  The binary model proposed by Midwest ISO 
participants would require the ISO to delegate certain functions to a 
for-profit transco, while retaining other functions and maintaining 
responsibility for overseeing the transcos activities.  The draft order 
commends parties for developing the proposal and finds that the proposed 
binary model generally conforms to the Commission's RTO mandate.  However, 
the Commission declined to make a final determination until a complete 
proposal is submitted.  Commissioner Massey's concurrence raises concerns 
associated with the sharing of power between an ISO and a transco.  
Commissioner Massey believes that such a division of power may be 
counterproductive and urges the parties to address the issue in their final 
filing.

 PIPELINE MATTERS
ANR Pipeline Company, Docket No. CP99-241
ANR's proposal to increase mainline capacity from Joliet, Illinois, into 
Wisconsin was approved in this draft order.  Specifically, the draft order 
permits ANR to construct an additional 20,000 horsepower of mainline 
capacity, thereby increasing mainline capacity into Wisconsin by 109,000 
Dth/day by November 1, 2000.  The Commission approved ANR's proposal after 
concluding that demand in Wisconsin justifies the expansion.

The expansion approved in this draft order is part of ANR's SupplyLink 
proposal (to be built in conjunction with the Independence/MarketLink 
project).  ANR decided to proceed with the Joliet-to-Wisconsin expansion 
after the SupplyLink/Independence/MarketLink project was delayed due to 
Commission concerns that the project was not adequately supported by market 
demand.  Although the expansion approved in this draft order was unrelated to 
the contentious portions of the larger project, Commissioner Hebert 
nonetheless moved the item to the discussion agenda to express his belief 
that market demand justifies the Independence/MarketLink project.  
Specifically, Commissioner Hebert cited recent spikes in heating oil prices 
as evidence that gas demand in the northeastern United States more than 
justifies the project.  Commissioner Breathitt disagreed with Commission 
Hebert and argued that the price of heating oil does not necessarily 
correlate to natural gas demand.