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Power Exchange Politics: Weighing the Regulator's Role

Fortnightly Magazine - October 1 1999

through rival exchanges?

* Ratemaking Interference? Will a FERC decision interfere with California PUC deliberations on a ratemaking formula for the post-freeze, post-transition period?

Various parties have argued over what the PUC and the FERC intended in key rulings issued between 1995 and 1997. In its initial order setting the buy-sell requirement, the FERC appeared to require a full five-year term: "The five-year provision is a transition mechanism that appears to be critical to the entire retail restructuring proposal." Yet according to SDG&E, this statement by the FERC was designed merely to offer "preliminary guidance" to the parties. SDG&E acknowledged that early FERC orders "at several points refer to a five-year buy-sell requirement," but the utility says those references merely reflected the "general expectation" at the time that it would take that long for utilities to recover their stranded costs.

Many parties believe that the transition period should not terminate simply with recovery of stranded costs, but instead implies an organic process to achieve competitive markets - a process not yet complete. Comments from the California Electricity Oversight Board typify this view:

"The completion of certain actions that were to be completed within a transition period is not synonymous with completing the transition period itself. Elements of the California restructuring are still in a critical maturation phase."

Moreover, consumer advocates from the UCAN (Utility Consumers Action Network) and TURN (The Utility Reform Network) note that the California PUC is considering issues regarding post-transition ratemaking for the state's investor-owned electric utilities (see Application No. 99-01-016), including the idea of performance-based ratemaking tied to market benchmarks. As UCAN and TURN explain, one of the topics of debate in those cases is how to interpret prior PUC decisions regarding the intended duration of the transition period. UCAN and TURN urged the FERC to reject SDG&E's application and instead show "considerable deference" to California's prerogatives on restructuring. The Western Power Trading Forum agreed:

"Given the pendency of this proceeding ¼ the actions of the CPUC should be accorded significant weight."

SDG&E: Escape from Pasadena?

"SDG&E proposes to delete the requirement that its sales at market-based rates be made through the PX because ¼ SDG&E has recently divested itself of all its of its fossil-fueled generation, dramatically reducing the amount of generating capacity that it (or its affiliates) control," says Nicholas W. Fels. Fels, an attorney at Washington, D.C., law firm Covington & Burling, represents SDG&E.

The utility sees the question in antitrust terms. As the FERC has jurisdiction over interstate wholesale power markets, SDG&E argued that the FERC should treat its application to lift the buy-sell requirement in the same manner as it treats requests by power marketers for market-based pricing authority - by examining market power.

"None of the comments filed in response to SDG&E's request even attempts to rebut the showing that SDG&E lacks generation market power. This should be the end of the matter." (FERC Docket No. 99-3426-000, SDG&E answer filed Aug. 16, 1999.)

(To be precise, SDG&E already agreed in a recent California PUC case on post-transition ratemaking to continue to purchase