You have probably already seen the trade press accounts of the hearing this 
week, but I wanted to make sure that you see this one, since it is more 
evenhanded and informative, with less rhetoric.

Let me know if you would like me to forward the other articles that I've seen.

Ron
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Date: Wed, 13 Sep 2000 07:33:40 -0500
From: "Tracey Bradley" <tbradley@bracepatt.com>
To: "Deanna King" <dking@bracepatt.com>, "Jeffrey Watkiss" 
<dwatkiss@bracepatt.com>, "Paul Fox" <pfox@bracepatt.com>, "Ronald Carroll" 
<rcarroll@bracepatt.com>
Subject: DJ -  FERC Chief Pledges Action, If Needed, On Calif Pwr Woes
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FYI - This article is very informative about the options FERC is considering 
to address the California power market situation; no surprises for anyone 
following this closely.  Please note that Chairman Hoecker felt the need to 
emphasize the limitations of FERC's power under the Federal Power Act.


DJ FERC Chief Pledges Action, If Needed, On Calif Pwr Woes
Copyright , 2000 Dow Jones & Company, Inc.


(This article was originally published Monday)
     WASHINGTON (Dow Jones)--The Federal Energy Regulatory Commission has 
limited authority to address flawed electricity markets in California and 
alleged price gouging by power producers, but will act to overhaul the 
state's wholesale power markets if necessary, FERC Chairman James Hoecker 
told a congressional panel Monday.

     The commission was ready to act once the results of an expedited staff 
investigation of problems affecting power markets in the U.S. West becomes 
available, Hoecker said in testimony presented to a San Diego field hearing 
of the House Commerce Committee's energy panel.

     "If we need to fix market rules or market structures within our 
jurisdiction, we will do so," Hoecker told lawmakers. And if price gouging is 
occurring "as some have alleged," he added, "we will respond accordingly, by 
revoking market-based rates or otherwise."

     However, Hoecker stressed that the commission's authority is limited 
under the Federal Power Act.

     "The commission has limited ability to relieve the immediate customer 
crisis. Important aspects of this problem are a state responsibility, such as 
authorizing construction of new generation and transmission facilities," 
Hoecker testified.

     The commission can't act to limit prices charged by power providers 
"until we have a record supporting such action," he said, referring to the 
results of the pending staff investigation.

     Further, he said, the law bars FERC from ordering retroactive refunds to 
San Diego Gas & Electric Co. for the power it purchased this summer to serve 
its retail customer base.

     Hoecker testified before the House Commerce Committee's Energy and Power 
Subcommittee, which is looking into the supply shortages in California this 
summer that have forced San Diego electricity consumers to pay twice as much 
for power as they did a year ago.

     State Mkt Structure Blamed For Crisis



     The hearing comes after much wrangling at FERC, as SDG&E, a unit of 
Sempra Energy (SRE), sought an order setting price caps for power bid into 
the state-sponsored electricity exchange, and power producers sought an order 
allowing cost recovery for lost opportunity sales if the state's independent 
grid operator curtailed sales outside California, where price controls don't 
apply.

     FERC hasn't yet responded to the producers, and deferred action on 
SDG&E's bid for price controls until the staff investigation is completed. 
But it left in place an order allowing the independent system operator to 
limit the price it pays for power, which acts as a de facto cap on prices bid 
into the power exchange.

     Hoecker, while withholding judgment pending the staff probe, appeared to 
place much of the blame for this summer's crisis with the state-mandated 
market structure, which left San Diego consumers subject to spot-market 
volatility.

     And he appeared to suggest that FERC's order directing utilities to 
transfer transmission assets to control of large regional transmission 
organizations, or RTOs, will offer an opportunity to develop a regional 
solution to the power-supply problem.

     FERC deferred to California in restructuring the wholesale market in 
California because its experience with new market institutions such as power 
exchanges and ISOs was limited, Hoecker said.

     Other states, such as Pennsylvania, were "less prescriptive than 
California in telling the commission how their wholesale markets should 
operate," Hoecker noted.

     Now, with FERC's Order 2000 encouraging formation of RTOs, "the 
commission is in a very different posture with respect to the structure of 
wholesale markets," he said.

     "Large regional markets can be made to work effectively," Hoecker told 
the lawmakers, citing the Pennsylvania restructuring as an example.

     Other witnesses were more forceful in criticizing the state-mandated 
market structure.

     By requiring the state's three investor-owned utilities to purchase all 
their electricity from the power exchange and limiting their ability to hedge 
price risks by entering into long-term fixed-price contracts, the state left 
consumers subject to volatility in the state-mandated spot market, said 
officials with Enron Corp. (ENE) and Reliant Energy (REI).

     California's market structure "placed no economic incentives on the 
default utility providers to look out for the costs that are ultimately 
passed on to their consumers," Reliant's John Stout testified.

     "San Diego's experience offers the Congress an unparalleled opportunity 
to learn from a bungled attempt at deregulation," said Michael Shames, 
executive director of Utility Consumer's Action Network.

     Shames and other witnesses warned the congressional committee that 
California's electricity crisis is likely to occur in other regions of the 
country unless steps are taken to free up interstate trade in power and allow 
FERC to better police markets.

     "California is just the latest problem area in U.S. power markets and, 
unless policymakers act quickly, it will not be the last," said Enron Corp. 
(ENE) Steven Kean executive vice president.

     "Unless Congress and FERC are willing to address the interstate issues 
that are beyond the jurisdiction of state legislators and regulators, I 
predict that our experience in San Diego is indicative of what others will 
encounter in trying to create a competitive electricity market," said Edwin 
Guiles, Sempra's president of regulated operations.

     "This electricity crisis is not a California-only problem," said Rep. 
Brian Bilbray, R-Calif., who represents San Diego and requested Monday's 
hearing.

     "We will continue to be in this mess if state and federal officials 
don't work together to find long-term solutions to the flaws in the 
marketplace," Bilbray said.

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

     (END) Dow Jones Newswires 12-09-00

     1215GMT