FERC: SMD/Grid Issues Lead 2003 Agenda

 

 

FERC looks ahead to the new year as it wraps up loose ends from 2002.

The Federal Energy Regulatory Commission's (FERC's) end-of-year meeting provided glimpses of top agenda items for 2003, such as seams issues between PJM and the Midwest ISO (MISO), and electric transmission construction. FERC Chairman Pat Wood said he "wants all 2002 issues fleshed out and put to bed" this year. Specifically, the chairman pointed to concerns about refunds, contracts, El Paso Electric, and market manipulation. Addressing those things is the only way to "build for the future and give capital markets some certainty," he said.

Wood added that the "aversion of capital markets to the industry must be turned around," and he acknowledged that resource adequacy requirements and financing the construction of new transmission facilities were the most complicated issues surrounding standard market design (SMD).

Meanwhile, Wood noted that "the lights are keeping on," but enough disagreement existed on the three-member commission that the addition of two new commissioners-expected soon-would make a big difference in building consensus. Many analysts predict that the 2003 Republican-controlled Congress will be appointing two new commissioners who will support Wood's policy vision for the industry.

New LNG Policy

At the meeting, FERC announced a new policy on regulation of liquefied natural gas (LNG) projects, moving away from open access tariffs, as it took steps toward approval of the first new LNG import terminal in almost 20 years at Hackberry, La. Dynegy Midstream Services, a Dynegy subsidiary, proposed construction of an LNG terminal capable of unloading 210 LNG tankers per year and processing 1.5 bcf of natural gas per day.

The commission also adopted a new policy for this and all other LNG facilities by requiring only that Hackberry file its contract with its affiliated customer prior to commencement of construction of the LNG terminal.

But it will no longer require any LNG operator to offer open access service or maintain tariff and rate schedules for terminalling service. In effect, the LNG terminal will be treated as the functional equivalent of a production facility. FERC stressed that its decision to adopt a less intrusive degree of regulation does not affect its jurisdiction.

FERC cited the Energy Policy Act of 1992 as an important consideration in adoption of the new policy. That law deregulated the prices, terms, and conditions of service for first sales of natural gas, including sales of imported LNG. FERC explained that sales of natural gas from these facilities would be made downstream of the LNG plant, where re-vaporized LNG would be delivered to Hackberry's pipeline and sold in competition with other sales of natural gas produced in the Gulf Coast region, in a deregulated competitive commodity environment. Because the terminal's costs would be part of the costs of producing and delivering LNG to the Gulf Coast marketplace and would be recovered only through sales of natural gas in these or downstream markets, FERC believes the new approach may provide incentives to develop added infrastructure to increase much-needed supply in the United States.

Commissioner