In April, Texas Utilities announced that it would buy ENSERCH, Western Resources launched a hostile takeover bid for Kansas City Power & Light, and The Southern Co. initiated its ultimately...
Collision or Coexistence: The FERC, the CPUC, and Electric Restructuring
they proclaimed three qualifications that may loom large as the CPUC fleshes out policy:
s The FERC will have complete and exclusive jurisdiction over PoolCo operations.
s The state proposal must embrace all salient features in the FERC's Open-Access NOPR.
s The FERC may act only upon formal proposals (em not informal dialogue.
The question arises: Do states enjoy latitude to adopt restructuring proposals that are meaningfully dissimilar from the federal model?
While the ISO as a grid operator finds precedent in FERC lore, the ISO as a marketmaker is both unique and, arguably, inconsistent with the unbundled transmission principles that underlie the FERC's NOPR. Professor William Hogan, widely considered the intellectual father of PoolCo, flatly states that the FERC open-access regime and the CPUC model are mutually inconsistent. Nevertheless, the pool's principal proponents have assured the CPUC that there is no inconsistency.
Proponents of "virtual direct access" claim their policy reflects reality, whereas "bilateral direct access" defies the physics of electric transmission. Others argue that PoolCo denies generators and consumers the cornerstone right to "unbundled transmission" guaranteed in the FERC NOPR. They claim the ISO will retain a first call-transmission capacity to dispatch power from facilities deemed "must run." Generators could be denied comparable transmission access to the grid to serve customers who retain the right to acquire power from third parties.
The CPUC majority views the ultimate right to enter into CfDs as providing access for generators and consumers that is equal, if not superior, to a naked right to transmission access. Indeed, CPUC chairman Daniel Fessler has challenged parties to describe a situation in which virtual direct access cannot replicate the economic function of a bilateral contract (em and very few examples have been provided. Nevertheless, the FERC eventually must decide whether to allow (or require) FERC-filed tariffs to be modified to conform to the CPUC's majority proposal, or whether both systems may coexist, or whether a centralized market role for the ISO is fundamentally inconsistent with the basic requirements of the federal system.
Apart from philosophical differences, proponents of the wholesale pool must convince the FERC that the existing market power of the state's three large investor-owned utilities (IOUs) can be adequately mitigated, and that operation of the power will yield "just and reasonable" prices under the FPA standard. Without question, the state's three IOUs have Hirschman-Herfindahl indices that indicate possession of market power in generation. PoolCo (em open to generators throughout the region (em is predicted to deprive the IOUs of market power. Moreover, the CPUC would set a floor and ceiling rate of return for the utilities' generating assets (other than the nuclear and hydroelectric). But those wary of the IOUs say there simply is not enough transfer capacity into California to rely on external generation sources. They argue that the IOUs alone will have generator facilities downstream from transmission congestion points, and thus may exert market power during peak periods and for ancillary services.
To date, while various representatives of the FERC have extolled the virtues of the pool concept for grid operation, they have