The sound and fury over trading scandals, credit defaults, and market manipulation so far has drowned out much of the mind-numbing debate over a standard market design (SMD), and rightly so....
Federalism At Work
Excerpts from the field hearing conducted by the Federal Energy Regulatory Commission on wholesale power markets in California.
San Diego, California, Tuesday, Sept. 12, 2000, 9 a.m.
James Hoecker:* Good morning, ladies and gentleman. We are here in San Diego to do some very serious work … I fully recognize that experts in this area can debate these issues, why this happened, and what should we do about it from hell to breakfast. … [Most of first panel omitted here.]
We are going to conclude this panel with a statement of the California Public Utilities Commission. Commissioner?
Carl Wood: Thank you very much, Chairman Hoecker. …
I would like to join with the residents and businesses of San Diego in urging you to provide speedy and effective relief for the economic disaster that has been visited on this community. …
I urge you to decisively and quickly provide San Diego with cost-based rates that reflect the traditional understanding of "just and reasonable." …
Hoecker: Thank you, commissioner. I'm wondering if you can illuminate a little bit. …
Wood: I'm not sure that what I've asked you for is very radical … there is a long history in this country, going back to the Federal Power Act … that establishes that cost-based rate making is the basis for determining just and reasonable rates. That's really the radical action that I'm asking that this commission assert.
Linda Breathitt: The notion of returning to cost-based rates without a FERC due process [hearing] involved would be very troubling to me because of the judicial nature of our orders. And we speak through our orders … That doesn't mean that we can't take definitive actions. It just must be supported.
Commissioner Wood, those were your comments, but I'm wondering if President Lynch also shares your view in calling for a return to cost-based rates?
Loretta Lynch: If it takes cost-based or cost-based-plus rates to give what California consumers are entitled to, I would support that.
Curt Hébert: If you're considering a move back to cost-based rates, then I'm assuming you have a rate of return in mind, something that you think would allow this market to correct itself?
Wood: I think that there is a very well-established methodology for determining appropriate rates of return, depending on comparable financial markets, depending on the risk that is incurred. There is a great deal of history with your agency, as well as state agencies in that respect.
[But] let me make something clear perhaps in response to your question and Commissioner Breathitt's. What we are proposing here is not a permanent return to cost-based rate making.
Hébert: Okay. And I'm assuming if you return to cost-based rates, that you would dissolve your existing Power Exchange? I'm not sure what the function of the PX would be at that point. You would dramatically change the ISO--downsize probably--move at that point to some kind of independent for-profit transmission company. Am I wrong, or do you see it a different way?
Wood: This is extremely speculative.