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Date: Thu, 22 Mar 2001 17:36:36 -0600
From: "Tracey Bradley" <tbradley@bracepatt.com>
Cc: "Aryeh Fishman" <afishman@bracepatt.com>, "Andrea Settanni" 
<asettanni@bracepatt.com>, "Charles Ingebretson" 
<cingebretson@bracepatt.com>, "Charles Shoneman" <cshoneman@bracepatt.com>, 
"Deanna King" <dking@bracepatt.com>, "Jeffrey Watkiss" 
<dwatkiss@bracepatt.com>, "Gene Godley" <ggodley@bracepatt.com>, "Kimberly 
Curry" <kcurry@bracepatt.com>, "Michael Pate" <mpate@bracepatt.com>, "Paul 
Fox" <pfox@bracepatt.com>, "Ronald Carroll" <rcarroll@bracepatt.com>
Subject: House Energy Subcommittee May Propose CA Emergency Options
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This was published in Electric Power Alert's PowerPlus Service
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House Energy Subcommittee May Propose CA Emergency Options

House Energy and Air Quality Subcommittee Chairman Joe Barton (R-TX) is 
predicting an emergency energy bill for California may be presented early 
next week to mitigate the state's power crisis through the summer. Among the 
hotly debated topics that may appear in a compromise bill were wholesale 
price caps, the possibility of granting federal regulators authority to site 
new power generation and transmission, mandatory demand side mitigation, and 
the removal of retail price caps for ratepayers.

While the state faced a second straight day of rolling blackouts, 
subcommittee members quizzed the three Federal Energy Regulatory 
Commissioners March 20 about the California situation. According to Barton, 
at Republican leadership meetings taking place at the same time, the 
California crisis was at the top of the agenda. Barton said he plans to 
discuss possible legislation with Subcommittee Ranking Member Rick Boucher 
(D-VA) after another panel is heard on March 22, and ideas will be considered 
over the weekend. But while he said it remains unclear whether anything will 
be presented, uncertain, time was of the essence -- he insisted that 
proposals would have to be introduced early next week. The remarks are 
another sign that the enormity of this summer's potential crisis is sinking 
in with legislators.

There seemed to be an uneasy acceptance during the hearing that California 
will inevitably come up short by several thousand megawatts this summer, and 
the need for unpleasant temporary mitigation measures has become urgent. Last 
week, in the Senate, Senator Gordon Smith (R-OR) offered a compromise with 
Sen. Dianne Feinstein (D-CA) in which he would accept temporary price caps as 
long as the state abandoned its steadfast refusal to pass wholesale rates 
onto consumers.

One of the more surprising suggestions came from Commissioner Linda Breathitt 
(D), who has been the most reserved FERC member throughout the crisis. She 
suggested that FERC's role in siting new transmission and generation 
facilities ought to be reconsidered.

"Under the Federal Power Act, the commission has no role in the permitting 
and siting of these new facilities," she said in her prepared statement. "I 
am beginning to believe this may need to be changed. FERC may need to have a 
greater role in the siting of new infrastructure, because shortages of 
generation and transmission likely will no longer be just single state 
issues. I believe these shortages could become interstate commerce issues 
that must be addressed by the Federal government."

In a frank exchange with Barton, the Commissioners all seemed in varying 
degrees amenable to the idea. "I think it is an intriguing idea," said 
Commissioner William Massey (D). FERC Chairman Curt Hebert (R) seemed 
cautiously approving of the idea, but only after noting that siting is done 
by the states for very good reasons. He warned not to "hardwire it," and 
acknowledged "some sort of one-stop shopping is a good idea." While Breathitt 
asked for Congressional authority for siting, Barton wondered about some 
measure that would give the state a time limit to do its own permitting 
before stepping in. But he added that something probably needs to happen. "I 
think it is the federal role to step in temporarily," he said.

Among the more contentious issues raised was temporary wholesale price caps. 
Arguing that FERC needed "to call a time out from this broken western 
electricity market," Commissioner Massey called for such caps calculated on a 
generator-by-generator basis with a $25 per megawatt addition, a firm sunset 
provision, and an exemption for new generation. He argued that without such 
protection during a grueling summer, a voter backlash could emerge and 
threaten the entire concept of electric competition in the region.

But the Subcommittee seemed decidedly hostile to the idea. Indeed, several 
Republican members pointed out throughout the debate that FERC only has 
ratemaking jurisdiction over 47 percent of the western market, which would 
limit their effectiveness. Additionally, many expressed the concern that it 
would effectively cut off potential power imports from Mexico and Canada.

It also appears increasingly unlikely FERC would put any such authority into 
use. Hebert, as he did before a Senate committee the previous week, warned 
that price caps have a dubious history, and added that they provide "no 
incentive to move into the forward market."

Breathitt also hesitated, suggesting that other options should be pursued 
first, and that price caps would only work if state regulators approved and 
public power authorities could be brought into the scheme.

Democratic Subcommittee members grilled the Commissioners about their recent 
refund orders for January and February that were calculated from proxy market 
prices. Boucher wanted to know why findings of "unjust and unreasonable" 
prices were limited to Stage 3 emergencies. "We deserve a more complete 
answer," he said. Hebert argued that to investigate further would stray 
outside their jurisdiction as set out by last year's California orders, and 
that the Commission did a thorough job of examining a wide range of 
transactions. In dissenting from this view, Massey expressed concern that 
FERC was limiting its scope, particularly in light of evidence from the 
state's own market monitors and scholars that market power abuse was likely.

Rep. Mary Bono (R-CA) applauded FERC's recent efforts. "While I believe that 
wholesale price caps are not beneficial for our long-term needs," she said. 
"I do believe, and further encourage, FERC to exercise its authority to call 
into question wholesale rates."

Rep. Edward Markey (D-MA) insisted that possible market gaming was 
detrimental to everyone. "Markets are built on public confidence," he said. 
"And right now the public has little reason to have confidence in the 
dysfunctional market that has been permitted to develop in California." He 
pressured the Commissioners to consider investigations of other companies 
under section 206 of the Federal Power Act, beyond the recently announced 
investigations into Williams Energy and AES. Some GOP members criticized the 
Democratic fervor to paint generators as unethical profiteers.

Rep. Steve Largent (R-OK), who represents Williams' home state, raised doubts 
about the validity of any such investigation. He demanded to know how exactly 
FERC established just and reasonable rates. When the Commissioners failed to 
present a satisfactory answer, he complained, "how can you hold someone 
accountable to a standard you don't know?" and suggested the investigation 
was "unconstitutional."