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Enron Mail |
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.] - TEXT.htm
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