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Pat Packs a Punch

FERC's new chairman runs roughshod over a reeling industry.

Fortnightly Magazine - January 15 2002

reins back in October. But that's my gain, since it gives me more time to ponder the news.

That said, here's my "top ten" list of the hottest disputes to watch going forward at the FERC, in rough order of significance:

  1. Transmission Market Design (). The big enchilada. FERC wants electrics to form a GISB-like structure, which puts paid to the unrealistic and overly hopeful political ambitions of the North American Electric Reliability Council.
  2. Generation Interconnection (). Wood wants to make his mark here, as he has reversed FERC's old policy, by ordering generic rules instead of moving case by case.
  3. Northeast RTO Mediation (). Much ado about nothing? Even if FERC acts, all it can likely do is create a board of directors, which then will have to do all the work.
  4. Western Infrastructure (). Wood wants to woo western governors. He also wants Wall Street to see FERC as the champion of infrastructure-putting distance between his commission and the Enron theory of value.
  5. Eastern Infrastructure (). Ditto. A big conference in Manhattan later this month.
  6. Generation Adequacy (). The most intellectually challenging case. Regulators want reserves, but many economists see ICAP programs as theoretically pointless.
  7. TRANSLink (). Breaks ground for transmission spinoffs. The only utility-sponsored transmission initiative that looks truly serious. A litmus test for transcos, with Alliance now gone.
  8. Western Price Mitigation (). FERC must face the music when the price caps sunset on Sept. 30.
  9. Wires Code of Conduct (). Not much to be gained here. Why seek more company-specific rules for transmission, if RTO's eventually will hold sway?
  10. Accounting for Derivatives (). Mainly for "show"-to keep Congress and Wall Street off Wood's back.

When I last checked on Dec. 20, the FERC's notice of proposed rule making (NOPR) on transmission codes of conduct (#9, above) had attracted comments from 15 different energy industry players, totaling 137 pages. By contrast, the NOPR on a standard transmission market design (#1 above) had logged 125 comments, with over 2,700 pages of testimony. Everyone has a dog in that race. And yet Wood has promised to get the market design rule out before the summer. He'd better crack the whip.

That brings us to item #10, the NOPR on utility accounting and reporting on profit and loss in derivatives trading.

At the December hearing at FERC, most of us hacks back in the press room saw this effort as "cover my back." You see, Wood wants an answer if Congress should ask him what FERC is doing to prevent a future "Enron-style" collapse at a utility that trades deep in derivatives.

The proposal is not out yet as I write. However, judging from Wood's comments on Dec. 19, this NOPR appears insignificant. To comply with recent guidelines issued by the Financial Accounting Standards Board (FAS 115, 130, and 133), FERC proposes to amend its Uniform System of Accounts to require utilities to include in their annual accounting reports certain summaries of potential gain or loss on derivatives trading positions and off-balance-sheet financing.

But I ask you: what good is a mark-to-market