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Standard Market Design editorial
by Patrick Reiten, President and CEO, PNGC Power
Kathi VanderZanden, PNGC Power, 503-288-1234
Portland, Ore. - 12/02/2002 - Members of the Federal Energy Regulatory Commission (FERC) were scheduled to come to Portland recently to discuss their idea for a new nationwide approach to regulating wholesale power sales and transmission that could have a major impact on what you and I pay for our electricity. So, you might ask, what is this new idea and why did FERC cancel this much-anticipated meeting?
FERC's Standard Market Design (SMD) is the third in a trilogy of regulations resulting from the law passed in 1992 that started the country towards deregulation of wholesale electricity markets. The proposed 600-page rule would reorganize power markets into regional grids, and is intended to settle a decade of uncertainty in power supply and transmission. This is a worthy goal in light of the extreme volatility in recent years in West Coast energy markets. But, the manner in which FERC approaches this goal raises more questions than it answers.
The main problem with the SMD is that it was not created for the Northwest with its low population densities and unique hydropower-based system. Rather, the SMD was intended to respond to problems in areas like the densely populated Northeast where power is provided mainly by thermal (gas, coal, and nuclear fired) generation that is located relatively close to population centers. The Mid-Atlantic States' thermal-based system covers 79,000 square miles. The Northwest's hydro-based system covers over 591,000 square miles. The likely result of FERC's attempt to impose a "nationwide design" upon the Northwest would be inefficiencies leading to a rise in our electricity rates.again.
The SMD rule proposes to set up new market mechanisms to allocate scarce transmission rights "to those who value them most." This really means "to those who will pay the most." This conflicts with a long-held policy priority of universal access to electric service. Smaller customers, especially those in rural areas dependent upon transmission service across vast distances, would be hard-pressed in a bidding war against large, deep-pocketed, national energy marketing corporations.
The SMD rule assumes the creation of markets that will respond to the level of transmission congestion at specific locations. Congestion occurs when there is more demand to use a transmission path than there is capacity in the path. But, the Northwest uses a hydropower system that fluctuates with the level of water run-off, links operations of many federal and non-federal dams, and meets many statutory mandates including flood control, fish and wildlife needs, navigation, recreation and irrigation. Our system's highly coordinated operation and its multiple uses make it extremely difficult for individual dams to respond to economic incentives at any particular location. This raises serious questions about whether FERC's SMD vision is realistic or beneficial for the Pacific Northwest.
Many have told FERC about these and other problems. Western Senators grilled FERC Chairman, Pat Wood, at a Senate Energy Committee hearing in September. Members of the Northwest Congressional delegation sent letters to FERC expressing concern. And, over 200 regulators and other officials in 22 states around the country have asked FERC to withdraw the proposal because they view it as a counterproductive infringement on local authority. But, it is difficult to tell if the message is sinking in.
Earlier this month folks in the Northwest were anxious to explain their concerns to FERC. Then FERC scrapped the meeting. The explanation given was that they heard the message at a gathering in Denver and will work on the proposal through a west-wide forum. Some remain skeptical and believe that FERC's move to focus on a west-wide group that includes California and the Southwest dilutes the Northwest's arguments. They feel that FERC may appear to ease off on onerous aspects of the SMD proposal now in order to help us craft a Trojan horse proposal that looks friendly but paves the way for harmful regulation down the line.
Regardless of one's view of FERC's current intentions, it would be in the best interests of all involved if all of the FERC commissioners schedule another visit to come and personally hear from knowledgeable people in this region. FERC should let each region solve its own problems before imposing a one-size-fits-all solution on utilities nationwide.
Ratepayers in this region have seen plenty of volatility in electricity recently. The last thing we need is a federal agency rushing to impose on us a solution to a problem that does not exist in the Northwest.
PNGC Power is an electric power services cooperative owned by 15 rural electric cooperatives serving customers throughout the Northwest.