FERC California order 'overreaching,' says Hebert

Federal Energy Regulatory Commissioner Curt Hebert said a proposed order to overhaul the California wholesale electric markets is 'overreaching' and will prolong the transition to workably competitive markets. But he stopped short of dissenting with his colleagues on the proposal released today. 'I�m close to a conviction that the commission is moving in the wrong direction,' he said. 'But it�s not the last word. It�s only a proposed order.'


Ann de Rouffignac
OGJ Online

Federal Energy Regulatory Commissioner Curt Hebert said a proposed order to overhaul the California wholesale electric markets is "overreaching" and will prolong the transition to workably competitive markets.

But he stopped short of dissenting with his colleagues on the proposal released today.

�I�m close to a conviction that the commission is moving in the wrong direction,� he said. �But it�s not the last word. It�s only a proposed order.�

Hebert said more decisive action was needed by FERC to address �structural defects� in the market. The structure needs to be changed to insure energy suppliers have needed incentives to build new plants; utilities have good reason to hedge forward in the markets; entrepreneurs have incentives to create new technologies and ideas to save energy and promote efficiencies; and consumers share in conservation efforts, he explained.

Instead, FERC came up with measures that will �prescribe� how a market should act, he said. Hebert�s objections could be summed up as follows:

� He rejected the notion of price caps and controls.

�Price controls didn�t work for Nixon and Carter. And they won�t work for Clinton either,� he said. Hebert said price controls achieve the opposite of what they are intended to accomplish. There will be less supply attracted to California thus exacerbating the supply problems and therefore contributing to even higher prices, he said.

� He recommended abolishing the single price auction, rather than modifying it.

The FERC order said the single price auction would be used for all sales at or below $150 Mw-hr. Hebert said that invites abuse. FERC said there will be no scrutiny of these bids. But bids above $150 Mw-hr must be scrutinized by FERC. He questioned why a supplier would want to submit to such review and oversight. Suppliers will simply sell power out of state whenever the price rises above $150Mw-hr to avoid that kind of scrutiny, he suggests.

The market would work better and be fairer, if suppliers were simply paid what they bid instead of the market clearing price, he said.

� Hebert objected to disbanding stakeholder boards of the California Independent System Operator and the California Power Exchange.

�Would the boards of other ISOs in markets like New England, PJM, or New York have responded any differently had they had the same situation as in California?� he asked.

He said the provision invites a �constitutional showdown� because the California PX and the ISO could balk at the requirement.

� Hebert agrees utilities should be encouraged to schedule load in the forward markets. But the question remains how much and who determines this, he said. He says it�s not wise to compel all participants to schedule 95% or more of load in forward markets.

�I draw the line in telling the utilities how much load to schedule in the forward and real time markets,� he says. �No single risk portfolio applies to all market participants.�

� He says FERC lacks the legal authority to order retroactive refunds.

FERC should have been crystal clear about this, he said, and California consumers deserve an honest answer. Going forward, FERC says suppliers will be subject to refunds until 2002, if prices are deemed unreasonable or unjust. If suppliers are subject to future refunds, supply deficiencies could be exacerbated.

�This will lead to an exodus of power outside of California,� he says.

In the proposed order, a footnote says that the commission is willing to consider other forms of refund relief.

�I don�t know what this means,� he says. Hebert said he presumed it meant FERC could encourage participants to voluntarily give money back.

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