News Digest

 

Power Markets

Summer Incentives for California. Citing high prices and power shortages—which will likely grow much worse this summer—the Federal Energy Regulatory Commission (FERC) imposed several new rules for the calendar year to reward electric customers for cutting usage and selling the power at wholesale, and then asked for comment on another half-dozen measures for 2001 aimed mainly at coaxing more efficiency out of the transmission grid.

But at the same time the commission warned that its actions would not solve the crises facing California and the West, and would not prevent electricity blackouts this summer. U.S. Dept. of Energy Secretary Spencer Abraham echoed that sentiment the very next day when he testified on Capitol Hill that blackouts are "inevitable" this summer in California, and might run anywhere from 20 to 200 hours.

• Mandatory Customer Incentives. Certain mandatory measures put in place through Dec. 31 will focus on customer-owned resources and consumer demand response: (1) California ISO and transmission owners must identify grid enhancements, (2) qualifying co-generation facilities (QFs) get extended waivers of operating standards for efficiency and fuel use, (3) customer-owned generation gets market-based rates, (4) customers cutting usage can resell the saved power at wholesale at market rates, (5) customers can modify wholesale contracts without notice to facilitate more demand-side management (DSM), and (6) DSM costs will be treated as other costs in calculating wholesale rates governed by a cost-based contract formula.
• Proposed Grid Incentives. Various proposals would offer incentives through Dec. 31 for upgrading transmission and granting grid access to new resources: (1) Premiums on equity returns (up to 14.5 percent) and ten-year depreciation for projects that boost grid capacity in the short term, (2) equity premiums and 15-year write-offs for grid upgrades involving new rights of way in service by Nov. 1, 2002, (3) recovery of certain costs for boosting grid capacity over constrained interfaces, (4) rolled-in cost recovery for grid upgrades and interconnections to bring on new resources, (5) use of Federal Power Act sec. 210(d) to ensure that electric supply reaches load, and (6) greater flexibility at hydro projects to increase power output.
• Massey's Lament. Commissioner William Massey argued instead that Western markets needed a cap on prices to catch their breath, and questioned the FERC's strategy, saying that "no one seriously can believe this order will cut demand enough." He noted that the California ISO's had projected deficiencies this summer of up to 6,800 megawatt, and said he feared the situation could plunge the region into recession. .

California Producer Refunds. Earlier, on March 9, the FERC had told 13 power producers either to refund $69 million or justify the prices they received in January for wholesale power sold through markets run by the California ISO or Power Exchange, during hours in which the ISO had declared a Stage 3 emergency because of lack of reserve capacity.

The FERC figured the assumed overcharges by comparing producer receipts to a proxy market clearing price of $273 per megawatt-hour—the price the commission believed would have prevailed if the sellers had bid their variable