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Content-Type: text/plain; charset=ANSI_X3.4-1968 Content-Transfer-Encoding: quoted-printable X-From: "SCIENTECH IssueAlert" <IssueAlert@scientech.com< X-To: X-cc: X-bcc: X-Folder: \Mark_Haedicke_Jun2001\Notes Folders\All documents X-Origin: Haedicke-M X-FileName: mhaedic.nsf Today's IssueAlert Sponsors:=20 [IMAGE] The IBM e-Energy Executive Forum =01) "Personalization, Partnership, and=20 Profitability" Designed for executives in the utility industry looking to leverage Custome= r=20 Relationship Management in the competitive marketplace. Topics will focus o= n=20 how process and technology can be leveraged to gain competitive advantage.= =20 Featured speakers will include IT analysts, solution partners, IBM=20 executives, and customers including: John Goodman, President of e-Satisfy;= =20 Richard Grimes, Director of CRM Energy Services; David Bonnett, Global=20 e-Energy Sales Executive, Siebel Systems.=20 www.ibm.com=20 [IMAGE] Rapidpartsmart is the newest, most powerful online parts search engine in = =20 the power industry. Rapidpartsmart is the complete source to locate, buy a= nd=20 sell engineered parts worldwide. Rapidpartsmart integrates over 5 million= =20 supply items into asset management and work management systems to ensure= =20 that you know all supply sources, all the time. Rapidpartsmart increases= =20 supply options, reduces outage risks and cuts inventory investment. Contac= t=20 John Kelly at (727) 669-3006 for more information or go to=20 www.rapidpartsmart.com =20 [IMAGE] The most comprehensive, up-to-date map of the North American Power System b= y=20 RDI/FT Energy is now available from SCIENTECH. =20 [IMAGE] IssueAlert for March 21, 2001=20 Dissension at FERC:=20 Commission Divided On Price Caps, Future Leadership by Will McNamara=20 Director, Electric Industry Analysis [News item from Reuters, March 20] The Federal Energy Regulatory Commission= =20 (FERC) said it remained divided on whether it should impose a temporary cap= =20 on wholesale prices in the western United States to prevent summer blackout= s=20 and price spikes. The three FERC commissioners, who regulate interstate=20 electricity markets, testified at a House of Representatives Energy and Air= =20 Quality subcommittee hearing as California braced for another day of=20 blackouts.=20 Analysis: Since the start of deregulation in the early 1990s, FERC's variou= s=20 positions on how competition should unfold across the country have been=20 fairly consistent. Despite its changing members, as a whole the five-member= =20 commission (with two positions currently open) has taken a "hands-off"=20 approach to its regulatory role, preferring instead to allow free market=20 forces to drive competition in the energy industry. In fact, Curt H,bert,= =20 appointed as FERC chairman in January by President Bush, told me in an=20 interview during his tenure as a commissioner that he envisioned a time whe= n=20 FERC would step out of its regulatory role altogether. However, significant= =20 structural and philosophical changes within the FERC have surfaced since=20 January, dovetailing with the departure of former chairman James Hoecker. A= s=20 the federal regulatory body for the energy industry, FERC has the=20 responsibility for setting price caps in all regions across the country. Th= e=20 debate over whether or not to take this controversial step seems to have=20 exposed some inherent dissension within FERC at the very time when the futu= re=20 leadership of the commission has been cast in doubt. =20 At the House of Representatives meeting on March 20, H,bert, a Republican,= =20 reiterated his objections to price caps. Chairman H,bert has maintained his= =20 long-standing opinion that wholesale price caps have done and can do=20 "long-term damage." In January, H,bert told me, "I have seen no evidence th= at=20 price caps will have any positive impact in creating a balanced market."=20 Although still generally opposed to wholesale price caps on a federal or=20 regional level, H,bert is willing to consider them as one possibility among= =20 other short-term resolutions to the ongoing market problems in California.= =20 Reuters reported that H,bert said at the hearings that "such controls are n= ot=20 a long-term solution and would discourage the industry from building more= =20 power plants to supply the West." Rather, H,bert believes that power=20 generators need the financial incentive to build new power plants, both in= =20 California and elsewhere. H,bert was quoted at the subcommittee hearings as= =20 saying, "Market prices will increase supply and reduce demand, thus=20 correcting the current imbalance. Capping prices through regulation or=20 legislation will have exactly the opposite effect."=20 Despite H,bert's opposition to wholesale price caps, fellow Commissioner=20 William Massey, a Democrat, asserted that California and the western region= =20 were in such a state of disrepair that a temporary "time out" or price cap= =20 was needed to let the market stabilize. "The commission must act forcefully= =20 and decisively to reassure market participants, policymakers and consumers= =20 that jurisdictional wholesale markets will produce consumer benefits and ju= st=20 and reasonable rates," Massey said. In addition, Massey reportedly also sai= d=20 that "such a price cap could be calculated on a generator-by-generator basi= s=20 at each generator's variable operating cost, plus a reasonable capacity=20 adder, perhaps in the range of $25 per megawatt hour." Massey reiterated th= e=20 severity of the crisis in California, noting that whereas wholesale power i= n=20 the state cost $7 billion in 1999 it increased to $27 billion in 2000 and= =20 could exceed $70 billion for 2001. =20 Rounding out the commission's divided opinion was Commissioner Linda Key=20 Breathitt, a Democrat, who said that all possible options should be analyze= d=20 and debated. Breathitt did not specifically mention any preference for pric= e=20 controls.=20 Chairman H,bert's stand against price caps is shared by Energy Secretary=20 Spencer Abraham and seemingly the entire Bush administration. In fact,=20 Abraham said that price caps on wholesale energy will "discourage investmen= t=20 in new generation at a time when it is most needed" and drive power produce= rs=20 to other regions of the country (and further away from California). The=20 Energy Secretary reportedly issued an even stronger statement against price= =20 caps during a Senate hearing on the electricity crisis in California. "The= =20 only action the administration will not take is the implementation of price= =20 caps," Abraham said. =20 Another House of Representatives Energy and Air Quality subcommittee hearin= g=20 is scheduled for later this week. Subcommittee Chairman Joe Barton, a Texas= =20 Republican, noted that the subcommittee will work toward deciding whether o= r=20 not legislation regarding wholesale price caps should be developed over the= =20 next few weeks. =20 This is not the first time that clear schisms have become visible within FE= RC=20 over major issues facing the energy industry. The commission also became=20 divided regarding the scope of regulation regarding regional transmission= =20 organizations (RTOs). FERC's December 1999 vote on the Alliance RTO=20 illustrated dissension within the commission and the divergent philosophies= =20 that the FERC commissioners hold regarding how the industry should be=20 regulated. Then-Commissioner H,bert was of the opinion that the Alliance RT= O=20 met FERC guidelines for RTO formation, and was the sole member who=20 successfully pushed for voluntary rather than mandatory participation in an= =20 RTO. However, H,bert stood as a minority. The other three commissioners at= =20 FERC at the time (Hoecker, Massey and Breathitt) preferred to wield a tight= er=20 regulatory hand and monitor how transmission owners comply with current=20 transmission policy. While H,bert supports the ownership of RTOs by utiliti= es=20 and letting free market principles rule, the other commissioners at FERC=20 appeared to support only passive ownership of RTOs by utilities.=20 Meanwhile, speculation continues that President Bush will soon appoint Pat= =20 Wood III, chairman of the Public Utility Commission of Texas (PUCT), to the= =20 position of FERC chairman. H,bert was named chairman in February by Preside= nt=20 Bush after James Hoecker resigned shortly before the new Republican=20 administration took office Jan. 20. At that time, the president did not=20 indicate that H,bert's appointment as chair was temporary. Wood was appoint= ed=20 by then Texas Governor Bush to the PUCT in 1995 and played a primary role i= n=20 the development of that state's restructuring plan. (Electric choice begins= =20 in Texas on June 1, 2001, with the start of a pilot program and then the=20 market opens fully to competition on Jan. 1, 2002). =20 The possible shift in leadership at FERC appears to be politically motivate= d.=20 There are two "Republican" openings to be filled at FERC by President Bush.= =20 As noted, presently H,bert is the only Republican among the current three= =20 members. Wood, reportedly a close ally and advisor to the former Texas=20 governor, has been repeatedly named as a strong candidate for one of the=20 Republican openings on FERC for some time. However, the Washington Post and= =20 Reuters have reported that Wood will be appointed as FERC chairman, forcing= =20 H,bert to step back into a role as commissioner. The report in Reuters=20 indicated that H,bert, a friend and prot,g, of Senate Majority Leader Trent= =20 Lott (R-Miss.), is personally "fighting the planned move." The nomination= =20 would require Senate confirmation.=20 Moreover, as political drivers continue to impact the structure of FERC, th= e=20 issue of price caps remains unresolved. The debate over price caps also has= =20 divided others involved, strictly along party lines. Generally speaking,=20 Democrats believe that the federal government should step in to prevent wha= t=20 has been called "price gouging" on the part of energy companies. Republica= ns=20 believe that the government (including FERC and the Bush administration)=20 should maintain a "hands-off" approach and allow the marketplace to determi= ne=20 prices. Speaking from a non-partisan point of view, some economists now=20 question whether=01*and not just how=01*deregulation of electricity markets= should=20 occur at all. For instance, Alfred E. Kahn, the Cornell University economis= t=20 who helped deregulate other industries, says that electricity markets may n= ot=20 lend themselves to full competition and that there may be a value in=20 retaining vertical integration among utilities (allowing a single regulated= =20 power company to produce, transmit and distribute electricity). The movemen= t=20 toward re-regulation certainly throws an additional wrinkle into the debate= =20 over wholesale price caps. =20 Yet, in any event, once again California remains the catalyst for=20 decision-making on this issue. As rolling blackouts threaten to continue in= to=20 a third day in the state, federal lawmakers may be pressured to issue a=20 definitive position on wholesale price caps for California, which of course= =20 would set a precedent for the rest of the country. As the industry's top=20 agency in charge of wholesale markets, FERC's ultimate position on price ca= ps=20 carries tremendous influence. Despite the apparent dissension within the=20 commission and possible changes in its leadership, FERC is presently=20 challenged to formulate a solid policy on how wholesale transactions will b= e=20 conducted, or once and for all absolve itself from jurisdiction in this=20 area. =20 An archive list of previous IssueAlerts is available at www.ConsultRCI.com Reach thousands of utility analysts and decision makers every day. Your=20 company can schedule a sponsorship of IssueAlert by contacting Nancy Spring= =20 via e-mail or calling (505)244-7613. Advertising opportunities are also=20 available on our website.=20 SCIENTECH is pleased to provide you with your free, daily IssueAlert. Let = us=20 know if we can help you with in-depth analyses or any other SCIENTECH=20 information products. If you would like to refer a colleague to receive ou= r=20 free, daily IssueAlerts, please reply to this email and include their ful= l=20 name and email address or register directly on our site. =20 If you no longer wish to receive this daily email, send a message to=20 IssueAlert, and include the word "delete" in the subject line.=20 SCIENTECH's IssueAlerts(SM) are compiled based on the independent analysis= =20 of SCIENTECH consultants. The opinions expressed in SCIENTECH's IssueAlert= s=20 are not intended to predict financial performance of companies discussed, = or=20 to be the basis for investment decisions of any kind. SCIENTECH's sole=20 purpose in publishing its IssueAlerts is to offer an independent perspecti= ve=20 regarding the key events occurring in the energy industry, based on its=20 long-standing reputation as an expert on energy issues. =20 Copyright 2001. SCIENTECH, Inc. All rights reserved.
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