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Fortnightly Magazine - October 15 1999

cannot set retail rates for consumers. It has no jurisdiction. How convenient.

Under its current policy, issued in 1996 in Order 592, the FERC examines monopoly market power in wholesale markets before approving an electric utility merger, but typically chooses not to sully its hands with such mundane matters as the real price that consumers pay.

In April 1997, for example, when it OK'd the merger (later abandoned) between Baltimore Gas & Electric and Potomac Electric Power Co., the FERC discounted testimony by its own staff witness David Patton, who had identified possible distortions in retail markets under a future regime of direct access for the BG&E or PEPCO service territories. It said it would leave it to regulators in Maryland to mull over retail market effects, but the Maryland PSC then dodged the issue.

According to attorney Sara Schotland, representing ELCON (the Electricity Consumers Resource Council), the Maryland commission "flouted its implicit commitment" to examine retail market power. (And hasn't Kansas now done the same thing?) That omission, she argued, showed why the feds should step in: "FERC cannot duck the effect of this or other mergers on retail markets given its statutory mandate to assure that mergers are consistent with the public interest."

WILL THE FERC TAKE ACTION THIS TIME, despite its apparent lack of retail jurisdiction? If not, who else will?

Back in 1976, in FPC v. Conway, the U.S. Supreme Court said the old Federal Power Commission could regulate at the interface of retail and wholesale markets - that it could ease a wholesale price squeeze threatening municipal utilities when they sell at retail. But that idea suffered a setback earlier this year, in Northern States Power v. FERC, when the 8th Circuit nixed the FERC's attempt to equalize the effect of rules for transmission line relief (TLR) between interchange (wholesale) and native-load (retail) transactions, saying Conway didn't apply, since the FERC's TLR remedy fell on the retail side of the interface.

Mindful of the commission precedent in merger cases against reviewing retail matters, Wichita has now opened a second front. In its ingenious new complaint filed on Sept. 7 (Docket No. EL99-90-000) the city argues rather convincingly that Western Resources has violated a capacity sharing agreement by taking surplus Wolf Creek (and other) capacity from its KGE subsidiary at less than embedded cost. With this argument, Wichita asks the FERC not to adjust retail rates so much as to equalize wholesale power allotments among divisions within the same interstate operating system.

When I asked Hersch Davis about all of this, he said he had never worked for a utility company, or studied utility regulation, but that he counted Wichita Mayor Bob Knight "as a personal friend of mine." He adds: "I am sure there are many other reasons why some regulatory agency should be scratching their heads, but this is one of the most obvious."

Does Jim Hoecker read his mail?


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