FERC Acts To Remove Obstacles to Address Western Energy Crisis

**Omnibus order mobilizes FERC's entire energy pricing and infrastructure 
authority
**To adopt financial incentives for capacity increases in transmission 
facilities
**Streamlines regulation of wholesale market, energy facilities siting and 
licensing
**Promotes conservation and wholesale side of demand-response bidding
**Order doesn't address price caps
**Meeting with Western state regulators/officials set for April 6, 2001 in 
Boise, Idaho

FERC moves to bring more economic and reliable energy supplies to the 
stressed California and Western energy markets.  FERC proposes to increase 
bulk power supply in the West by removing barriers and providing incentives 
that are within its jurisdiction over facility certification, licensing, and 
the regulation of transmission and wholesale power sales in interstate 
commerce.  FERC quickly wants to increase electric generation and 
transmission capacity, as well as to streamline the regulation of wholesale 
power transactions, as well as increase the capacity of the supporting 
infrastructure of natural gas and oil pipelines.  The order, which sets new 
precedent in its broadness, also proposes actions to reduce electricity 
demand in the West as well as promoting the necessary wholesale-market 
portion of demand-response bidding where states wish to implement the retail 
side.  FERC asks for comments on additional actions it may take in the future 
by March 30, 2001.

Effective immediately, FERC said in a statement, *the Commission is 
streamlining regulatory procedures for wholesale electric power sales, 
expediting the certification of natural gas pipeline projects into California 
and the West, including the reallocation of staff resources to more quickly 
address pending pipeline applications, and urging all licensees to review 
their FERC-licensed hydroelectric projects in order to assess the potential 
for increased generating capacity.*

Among the actions FERC takes are to: 1) require the California ISO and 
transmission owners within all 11 states of the Western Systems Coordinating 
Council (WSCC) to prepare a list of grid enhancements that can be completed 
in the short term; 2) waive prior notice requirements for any on-site or 
self-generators that sell at wholesale within the WSCC area; 3) grant blanket 
market-based rate authority for sales on the wholesale market of electric 
energy that becomes available as a result of demand-response reductions in 
retail and wholesale loads; and 4) broadening and extending  through December 
31, 2001 the temporary waivers of the operating and efficiency standards for 
qualifying facilities (QFs) to increase the availability of generating 
capacity.

FERC seeks comments by March 30 on a series of economic incentives aimed at 
ensuring timely upgrades to the western transmission grid, including an 
increased rate of return on equity (ROE) for projects that significantly 
increase transmission and can be in service by either June 1, 2001, or 
November 1, 2001.  Other areas that FERC requested comment on include the use 
of interconnection authority under the Federal Power Act, and to raise the 
dollar limits on the issuance of blanket certificates authorizing gas 
pipeline construction.  On hydro issues, FERC requested comment on ways to 
increase operating flexibility at FERC-licensed projects while protecting 
environmental resources.

In its effort to encourage investment in transmission infrastructure, FERC 
asked for comments - again by March 30 - on a series of economic incentives 
aimed at ensuring upgrades to the Western interconnection, including the 
increased ROE for projects that significantly increase transmission on 
constrained paths and can be in service by the above dates in 2001.  
Increased ROE, FERC said, will also be given to system upgrades over new 
transmission paths that can be in service by June 1, 2002, or November 1, 
2002.  FERC seeks comment on a proposed 10-year depreciation period for 
projects that increase transmission capacity in the short-term and a 15-year 
depreciation period for upgrades involving new rights-of-way that can be of 
service by November 1, 2002.

In his dissent to the order, Commissioner Massey argued the order focuses on 
"quick fixes," and that the measures will not close the gap between supply in 
demand in California.  The order also "fails to address price relief," noted 
Massey.  Massey also called for a full Federal Power Act (FPA) Section 206 
investigation of California issues, which would allow for the possibility of 
refunds.  On transmission incentive provisions, Massey lamented that the 
proposed ROE increase to 14 percent appeared arbitrary and inconsistent with 
FERC policy under Order No. 2000.  The financial provisions, he said, 
appeared to be "just throwing money at the problem."   While generally 
disappointed with the order, Massey did express limited support for many 
parts of the order.  Many of the suggestions in the order are the "same 
actions as authorized last May," said Massey.  "They were good ideas then, 
and they are good ideas now," he concluded.

For his part in comments at the open meeting when the order was adopted, 
Chairman Hebert said the order was designed to "squeeze every additional MW 
of supply available" and to encourage the conservation of MW, and stressed 
that FERC is "doing all it can in its power to alleviate Western problems."  
He said the order seeks to eradicate the projected supply shortfall in 
California, but noted that generation/transmission siting, and conservation 
are generally state issues.

FERC's *removing obstacles* order is posted on its web site at:
http://www.ferc.fed.us/electric/bulkpower/EL01-47-000.pdf

Citation: FERC issued is order removing obstacles to increased electric 
generation and natural gas supply in the western United States and asking for 
comments was issued on March 14, 2001, Docket No. EL01-47-000.

A detailed analysis and summary of the specific actions taken and proposals 
made follows:

Electric Transmission Infrastructure

Within 30 days, the California ISO and transmission owners in WSCC are to 
prepare and file for information purposes a list of grid enhancement projects 
that may be underway or may not require initial siting and acquisition of 
rights of way.

FERC proposes a scaled transmission infrastructure incentive under which 
transmission owners of projects that increase transmission capacity at 
present constraints and can be in service by July 1, 2001 would receive a 
cost-based rate reflecting a 300 basis point premium return on equity and a 
10-year depreciable life.  Projects in service by November 1, 2001, would get 
a 200 basis point premium and 10-year depreciable life.  FERC would use a 
uniform baseline return on equity for all jurisdictional transmission 
providers in WSCC of 11.5%, based on the ROE FERC approved for Southern 
California Edison.

System upgrades that involve new rights of way, add significant transfer 
capability and can be in service by November 1, 2002, would get a cost-based 
rate reflecting 12.5% ROE, or a100 basis point premium, and 15-year 
depreciable life.

Facilities needed to interconnect new supply to the grid, which go into 
service as required to accommodate the in-service date of the new plant would 
get a cost-based rate that reflected a 13.5% ROE, or a 200 basis point 
premium, if in service by November 1, 2001 and 12.5% ROE if in service by 
November 1, 2002.

For increases in transmission capacity on constrained interfaces that do not 
involve significant capital investments, for example, installing new 
technology, FERC proposes to allow transmission owners to increase the 
revenue requirement of their network service rates to ensure that each 
additional MW of capacity will generate revenues equal to their current firm 
point-to-point rate.  FERC requests comment on whether to assign the cost of 
any interconnection or system upgrade to a particular load or supply, or 
alternatively, to roll these costs into the average system rate.

Extension of Waivers for QFs

FERC proposes to extend its temporary waivers of operating and efficiency 
standards for QFs - applicable throughout WSCC - to allow increased 
generation through December 31, 2001.  The waivers were to expire on April 
30, 2001.  The proposed waiver would allow qualifying cogenerators to sell 
their output above the level at which they have historically supplied this 
output to purchasing utility.  The waiver for qualifying small power 
production facilities in WSCC with respect to their fuel use requirements 
under FERC regulation section 292.204(b), would be extended to December 31, 
2001.

Additional Capacity From On-Site Generation

FERC will adopt streamlined regulatory procedure to accommodate wholesale 
sales from such facilities that serve load within WSCC.  Through December 31, 
2001, owners of generating facilities located at business locations in WSCC 
and used primarily for back-up or self- generation who would become subject 
to FPA by virtue of sales of such power will be permitted to sell power at 
wholesale without prior notice under FPA section 205.  FERC also authorizes 
such power to be sold at market-based rates.   FERC waives its prior notice 
requirement for mutually agreed upon interconnection agreements for 
interconnections necessary to accomplish these sales.  Quarterly reporting is 
required.

Allows Demand Response Bidding

FERC will allow retail customers, as permitted by state law, and wholesale 
customers to reduce consumption for the purpose of reselling their load 
reduction at wholesale.  FERC is granting blanket authorization, consistent 
with its prior discussion on sales from on-site generation and requires 
similar reporting.

FERC's December 15 order on the California market directed, as a longer-term 
measure that the ISO pursue establishing an integrated day-ahead market in 
which all demand and supply bids are addressed in one venue.  FERC seeks 
comments on the desirability of accelerating action on this.

FERC says it realizes that states play an important role in regulating retail 
electric service and that allowing retail load to reduce consumption for 
resale in wholesale markets raises legal, commercial, technical and 
regulatory issues.  Safeguards may be needed to protect and enhance retail 
demand-response bidding programs.  Intention is not to undermine state 
programs but to promote the necessary complementary wholesale programs.  
Requests comments on how helpful this action is and how it can be 
accomplished consistent with state jurisdiction over retail sales.

Contract Modifications for Demand-Response Bidding

There may be opportunities for public utilities to make other types of 
demand-response arrangements with their wholesale customers.  As for mutually 
agreeable QF interconnections, FERC will waive prior notice requirement for 
any mutually agreeable demand-response related rate schedule amendments that 
may be required to effectuate these arrangements.  Clarifies that 
demand-response program costs should be treated consistently with all other 
types of incremental and out-of-pocket costs.

Interconnections

FPA section 210(d) allows FERC to issue an order requiring interconnection if 
it makes a finding that such an order: 1) is in the public interest; 2) would 
encourage overall conservation of energy or capital, optimize the efficiency 
of use of facilities and resources, or improve the reliability of any 
electric utility system or federal power marketing agency to which the order 
applies; and 3) meets the requirements of FPA section 212.

FERC requests comments on whether it can use this authority under FPA section 
210(d) to alleviate existing impediments to electricity reaching load.  If 
the exercise of this authority may be warranted, FERC seeks comments on 
whether it could make some of the required findings generically for the WSCC 
region in order to respond quickly should circumstances arise requiring 
immediate action.

Longer Term Regional Solutions

FERC believes an RTO for the entire western region or the seamless 
integration of Western RTOs is the best vehicle for designing and 
implementing a long-term regional solution.

Natural Gas Pipeline Capacity

FERC has realigned its resources to respond to new applications for gas 
pipeline capacity and is soliciting comments on ways to expedite the approval 
of pipeline infrastructure needed to serve California and the West.  Requests 
comments on how it might further exercise its authority over new pipeline 
construction to alleviate the present crisis, including increasing the dollar 
limit thresholds for blanket certificates to $10 million, and for prior 
notice authorizations to $30 million in order to increase the facilities 
qualifying for automatic authorization; offering blanket certificates for 
construction or acquisition of portable compressor stations to enhance 
pipeline capacity to California; and offering rate incentives to expedite 
construction of projects that will make additional capacity available this 
summer on constrained pipeline systems.

Hydroelectric Power

FERC staff will hold a conference to discuss methods to address environmental 
protection at hydro projects while allowing increased generation.  Requests 
comments on ways to allow for greater operating flexibility at 
Commission-licensed hydro projects while protecting environmental resources.  
Comments should consider: 1) methods for agency involvement; 2) ways to 
handle and expedite Endangered Species Act consultations; 3) criteria for 
modifying licenses; and 4) identification of processes that could be 
implemented to provide efficiency upgrades.

Oil Pipelines

FERC will explore with oil pipelines innovative proposals that could lead to 
ensuring an adequate flow of petroleum product into the California market.

Conference with State Commissioners

FERC will hold a one-day conference with state commissioners and other state 
representatives from Western states to discuss price volatility in the West 
as well as other FERC-related issues identified by the Governors of Western 
states.  By notice issued March 16, this meeting is scheduled for April 6, 
2001 in Boise, Idaho.

[Source: FERC 03/14/01 order, Docket EL01-47-000, and news release.]
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