Maureen Lorenzetti
OGJ Online
The wholesale electricity market is going through an "ugly adolescence" that needs clear and fair guidance from regulators, says Nora Mead Brownell, a US Federal Energy Regulatory Commission member.
Last May the Senate confirmed Brownell for a seat at FERC, the federal agency that oversees wholesale gas and electric markets. Outside a small fraternity of energy lawyers, the agency toiled in relative obscurity until the recent California power crisis helped return energy regulation to the spotlight.
Now, for better or worse, the country is watching to see what FERC can do to ensure the California situation doesn't repeat itself, and equally important, does not occur elsewhere.
"The fundamental point is you can't change supply and demand no matter what economic model or political influence you try to use. If you don't have supply, you don't have supply," Brownell says when asked to dissect what went wrong with California's effort to restructure retail electricity markets.
"Did we [FERC] exacerbate the situation? Yes. But the collision was on course and unavoidable. If it did not happen sooner it would have happened later. It was a basic fundamental problem of not enough of a commodity."
Analysts expect the agency, under the new leadership of Chairman Pat Wood III, a former Texas utility commissioner, to administer what one market watcher called "tough love" to shield ratepayers from market abuse.
Brownell, who like Wood is a Republican, knew him when she was a Pennsylvania utility commissioner and when she served as president of the National Association of Regulatory Commissioners. Brownell agrees that the two share similar views of how energy markets should work.
Meting out "tough love" or being "the bad cop" may not necessarily be the slogan Brownell or others at the commission would like industry to use when describing the agency's redefined role. Instead, what Brownell says should be obvious is the commission's "bottom line" to keep rules market-based and straightforward enough that there is little room for doubt.
"People want regulatory certainty so they can plan for their business. We are laying that out with regional transmission organizations [RTOs], and you will see a clear vision and direction by this FERC to eliminate regulatory uncertainty.
She says large, independent RTOs can improve grid reliability by facilitating transmission planning across a multi-state region; creating better pricing mechanisms, such as eliminating "pancaking;" improving efficiency through better congestion management; and attracting investment in infrastructure by building regional consensus on the need for construction.
Lawmakers also have a role to play, Brownell says. "Congress needs to act because the investment community will not support capital unless they know what the rules will be. The biggest economic driver is a comprehensive energy bill."
The energy reform bill passed by the Republican-controlled House largely avoids changes to existing laws regarding wholesale electric markets. However, the White House says the bill is still very important because it seeks to boost domestic energy supplies and encourage conservation.
House Republican leaders say they will decide separately what to do about reforms for the $200 billion electric market. They plan a round of hearings to update electricity laws, some of which date back to the 1930s. Meanwhile, Senate Democrats are working on a 400-page energy reform proposal that would update electricity laws and give FERC clearer authority over regional markets.
But the prognosis on when a comprehensive energy bill will pass Congress is speculative at best, say congressional staff and energy lobbyists. Most do not expect a serious debate before February.
Brownell and the FERC staff have largely stayed out of the specifics of the congressional energy debate, arguing FERC's role as an independent agency is to ensure laws now on the books are being enforced.
The commission however, has offered guidance when asked about pending proposals. For example, it gave advice Oct. 24 to John Dingell (D-Mich.), ranking member of the Committee on Energy and Commerce. He had sought FERC's opinion on a draft electricity restructuring bill that Joe Barton (R-Tex.), chairman of Subcommittee on Energy and Air Quality, was circulating.
In those comments, Chairman Wood called on Congress to give the agency flexibility with RTOs.
"As market circumstances and structures change, and as the commission gains experience with market behavior, the commission needs the flexibility to adapt its rules over time to ensure that customers remain protected. Legislative codification of detailed standards could preclude this," Wood wrote.
Brownell has delivered a similar message to Congress. In testimony before Barton's committee Sept. 20, she urged lawmakers to affirm FERC's authority to require the formation of RTOs "and it should do so now."
Brownell says that FERC already has what she calls "the vision and the rules of the road" to move forward with RTOs. But getting different areas of the country in sync may still take some time, she acknowledges.
"Some are well under way, some may take longer. We appreciate different timetables and each regional has a unique set of challenges."
But that doesn't mean FERC can be patient forever.
"There's too much money on the table. We need to get integrated and we can't afford to dawdle."
Brownell and Wood will talk to Wall Street analysts the first week of December. Their message will be: until RTOs are up and running, FERC will be aggressively working with states moving them forward to a regional market approach.
"We can never let California happen again," she says.
Items on Brownell's "must do" list include: establishing RTOs, standardizing business rules, and ensuring rules are fair and transparent for affiliate companies.
She concedes that the California debacle may have cooled some states' interest in retail energy choice programs. But she says state regulators may want to revisit the idea later.
"Once we get wholesale markets fixed, retail will come back," she says.
Brownell also strongly believes, as do Wood and Democratic commissioners William Massey and Linda Breathit, that FERC must have an expanded role in monitoring for and mitigating market abuse to ensure public confidence and keep shareholders happy.
"It may be appropriate to clarify that the commission has the authority to seek the information necessary to perform its statutory responsibilities from either jurisdictional or non-jurisdictional sources," she told Barton's committee earlier this year.
Another goal is to increase coordination between FERC and other agencies, such as the Energy Information Administration. She says consolidating federal and state data requests also would save time for both regulators and the regulated.
"Markets don't wait for 15 months as people throw paper at each other. We need to change the way we do business."
Contact Maureen Lorenzetti at [email protected].
