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Regulators' Forum: A Fight Over Market Design

FERC's attempt to standardize markets have some state regulators up in arms.
Fortnightly Magazine - November 15 2002

real fall-off in reliability in the distribution system. Most people have focused on the generation market and whether or not there is enough capacity to maintain reliability there. Our problem has been on the distribution side and on the maintenance and repair practices of the wires infrastructure.

Once Burned

California: Never Again

An interview with Loretta Lynch, President, California Public Utilities Commission

Is FERC's proposed SMD perceived as beneficial or detrimental to California?

I don't think that it is perceived-I think it is detrimental to California. Basically, it cements all the deregulatory mistakes and allows California no way out of deregulation, which means that the economy will be even more severely damaged.

What exceptions to SMD should be made for your region?

We will fight it with our last dying breath. FERC's one-size-fits-all policy just will not work for the West and will not work for California. It doesn't have strong enough market controls, as the GAO [General Accounting Office] has found. FERC, even if it has the will, does not have the means to control this market or to regulate it effectively, and it will dictate to California not only what kind of energy we use-through the various FERC definitions of "reserves"-but also it will increase prices in California. We just don't have the money to continue to overbuild in California, which is the direction FERC is headed. And I believe it will clash specifically with state law-both state law in terms of ISO governance-because the ISO is a state corporation as much as FERC would like to think it is entirely within its control-but also with a new law that Governor Davis just signed, which really is a leader in the nation-SB 1078, which mandates 20 percent renewable power sources in California by the year 2012.

What do you think of FERC's increased assertion of jurisdiction over transmission in the SMD?

I don't think they have the statutory ability to do it, which is why they are so desperately trying to obtain more authority in the federal energy bill that is in conference [in Congress] right now. And of course, we'll be challenging them on that. In New York v. FERC, the U.S. Supreme Court left those questions open, and FERC presumes to answer those questions in its favor without-from my perspective-adequate statutory support.

What is the future of electric restructuring in California?

I find that an irrelevant question. The state legislature has already made the decision that we will go back to cost-of-service rate making, in its attempt to pick up the pieces from this disastrous experiment.

In a post-September 11 world, how is your commission handling utility security issues right now?

We are working closely with utilities on those issues, putting in more time and effort. But I don't want to get into the particulars.

In a post-Enron world, what issues are you dealing with regarding corporate responsibility and governance?

Everything. We have been battling the generators and the sellers in the California market for basic access to documents. We have gone to the California Supreme Court twice