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Regulators Forum: Taming the Utility Frontier

Policymakers are setting sights on new challenges facing utilities.

Fortnightly Magazine - November 2006

policies.

In many cases when states enacted these programs, they put on things like price freezes, which in a rising-price environment didn’t lead to what we’d call a competitive market. The flaw is pretty evident, and states are struggling in many cases to figure out what they are going to do when price freezes come off. That shouldn’t be an indictment of a more competitive system.

Fortnightly: What’s the appropriate way to apportion merger benefits? How should regulators balance the benefits of increased scale against the prospects of growing market power?

Moeller: It’s not necessarily a tradeoff. Those can be balanced in ways that allow for better economies of scale while addressing the market-power issue. Ultimately we have to be concerned that we are looking out for the consumer. If consumers benefit from a merger, that is the key threshold.

Generally speaking, I welcome new sources of capital in this capital-intensive industry. But we always have to be concerned about market-power issues. That is part of our job. We’re not in a position where we should encourage mergers, but we should conduct a thorough and fair evaluation of them.

Fortnightly: What should be the FERC approach to balancing national and local interests in siting and permitting facilities like LNG terminals, gas pipelines, and electric transmission lines?

Moeller: Our role in gas is different from our role in transmission, which is really only back-stop authority. We don’t expect a large rush on our need to apply that authority.

Local concerns always have to be a major part of the decision-making process, but ultimately we are seeing demand growth in a growing economy. Not surprisingly, the places where there is the most growth are also the most challenging places to get the infrastructure built. But this infrastructure has to get built and we need to move on that.

We had a long period of time where the electric industry, for very good reason, wasn’t sure what the policy signals were. But with the 2005 act (EPACT), we now know what the national policy is, and we have some make-up work to do in getting transmission lines built. I’m hoping FERC will make some progress on this.

Fortnightly: What role should electric and gas utilities take in addressing the challenges of national energy security and climate change? How can FERC help them in their efforts?

Moeller: I’ve always thought the industry might face pressures from the investor community, even before they face legislated mandates. It is prudent for utilities to be quite concerned about that aspect of their industry, if eventually there are regulations that affect those emissions.

FERC’s role is pretty limited in terms of our jurisdiction. But what would I like to see utilities do? Embracing more demand-side management is one thing with several benefits, one of which is to help stabilize greenhouse-gas emissions. It also helps shave peak load and potentially send more accurate price signals to customers. But that is in the hands of the states far more than it is in our jurisdictional basket.

With regard to national energy security,

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