Sounds like at least some at FERC already share our view on what is wrong 
with California. 
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Date: Mon, 16 Oct 2000 14:46:33 -0500
From: "Tracey Bradley" <tbradley@bracepatt.com>
To: "Deanna King" <dking@bracepatt.com>, "Paul Fox" <pfox@bracepatt.com>, 
"Ronald Carroll" <rcarroll@bracepatt.com>
Subject: DJ - US FERC Taking 'Hard Look' At Pwr Mkt Abuse Allegations
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This article provides another data point indicating that FERC does not plan 
to return to cost-based rates in California.

DJ US FERC Taking 'Hard Look' At Pwr Mkt Abuse Allegations
Copyright , 2000 Dow Jones & Company, Inc.

(This article was originally published Thursday)


WASHINGTON (Dow Jones)--The Federal Energy Regulatory Commission will act 
aggressively in response to any evidence of market manipulation uncovered by 
a pending staff investigation of problems affecting U.S. wholesale power 
markets, a top commission official said Thursday.

FERC will "take a hard look" at allegations that power producers in 
California exercised market power during this summer's tight and volatile 
market, said Daniel Larcamp, director of FERC's Office of Markets, Tariffs 
and Rates.

He said he expects the commission to be "aggressive in response to 
anticompetitive behavior." He didn't elaborate.

But the FERC official, speaking at a conference for industrial energy users, 
focused his remarks on the structural problems plaguing the California 
market, and U.S. electricity markets in general.

Fixing the problems with California's market structure will require political 
and regulatory courage, Larcamp said, rejecting calls from municipal 
utilities and others in the state for a return to cost-of-service ratemaking.

The transition from command-and-control regulation to competitive markets 
"will have problems," Larcamp said.

The task for regulators is "to do a better job of anticipating the problems," 
he said, conceding that California's woes this summer have shaken the 
public's confidence in market reforms.

Larcamp drew a contrast between California, where power plant development has 
been virtually nonexistent over the last decade, and the U.S. Midwest, where 
unprecedented price spikes in 1998 and 1999 spurred a rash of power plant 
development.

The Midwest markets never saw power above $150 per megawatt-hour this summer, 
Larcamp noted, conceding that this may be in part due to the "good luck" of 
more normal summer weather.

But while tens of thousands of megawatts of new power capacity has been 
proposed for the Midwest in the wake of volatility in 1998 and 1999, 
California and the entire Western Systems Coordination Council have seen only 
800 megawatts of new capacity proposed over the last 18 months, Larcamp said.

"Those statistics are rather startling from my perspective," he said, 
suggesting that the figures indicate barriers to market entry.

Yet even with the boom in proposed plant development in the Midwest, the 
summer saw an increase in use of transmission line-loading relief procedures 
in the region, Larcamp noted, calling this a signal of the need for more 
investment in generation and transmission.

But while FERC has directed utilities to standardize interconnection 
standards, Larcamp said, the primary responsibility for plant siting lies 
with state authorities.

Citing concerns that California siting policies and environmental review 
contribute to the lag in new plant development, Larcamp suggested changes 
should be implemented to speed the process without compromising environmental 
protections.

Since FERC can only do so much in addressing the supply side, it is giving 
serious consideration to measures it can take to address the demand side of 
volatile U.S. power markets, Larcamp said.

Retail consumers typically buy power at fixed rates and see no "price signal" 
during constrained and volatile markets. This lack of a "demand response" is 
a key problem affecting all U.S. power markets, Larcamp said.

"Demand has been growing at very high rates," he said, citing 5% annual 
growth in some regions and 7% growth last year in California.

One solution may be to allow retail customers, particularly industrial 
consumers, to re-sell their power into the market at prevailing rates, 
Larcamp suggested.

However, he noted such a program would have to be structured to avoid legal 
problems under the 1935 Public Utility Holding Company Act.

-By Bryan Lee, Dow Jones Newswires, 202-862-6647, 
mailto:bryan.lee@dowjones.com

(END) Dow Jones Newswires 13-10-00