(November 2009)Regulators are in the unenviable position of determining an allowance for ROE that’s fair to consumers and investors in a volatile economy. The cases that stand out this year...
Regulators Forum: Taming the Utility Frontier
Policymakers are setting sights on new challenges facing utilities.
the electric utility industry, and how should it affect FERC’s policies?
Wellinghoff: This is something that is largely in the states’ purview. Legislators and PUCs are the ones to decide whether they go back to regulation; FERC doesn’t have a role to play.
It certainly will have an effect on the spread and effectiveness of organized wholesale markets, and there will be seams issues between organized competitive markets and states that don’t participate fully in those markets. Those will be the areas where FERC will have to work out issues with respect to delegating costs, for example. But the ultimate policy rests with the states.
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?
Wellinghoff: There should be a way to assess whether benefits exceed costs. In the Sierra Pacific and Nevada Power merger, we set down careful metrics to ensure the benefits exceeded the costs, or the costs would not be recovered. Similar things need to happen at the federal level. FERC ought to have the ability to fully review and audit merger transactions to ensure we are getting the full picture of the benefits and costs.
On the other hand, there certainly are instances where entities who merge can provide benefits to consumers. I’m not suggesting we shouldn’t have mergers, but for consumers we need to ensure the benefits are demonstrated.
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?
Wellinghoff: Any infrastructure investment should use technologies that are as efficient as possible. We can’t continue to build inefficient infrastructure in this country. We have to look at the latest technology, and calculate life-cycle versus initial costs, and ensure what gets built will continue to serve us well for 30 to 50 years.
For example, when building pipelines with gas-turbine compressor stations, we can’t afford to waste the 900-degree exhaust heat that is going out the back, if it can be recovered. We need to utilize it efficiently.
With regard to national and local interests, we need to ensure that at each site, we go into the local area and address the local concerns. People are concerned about safety, economics and land values. We need to make sure those issues are addressed at the local level. If they aren’t, all that will result is a protracted legal fight and that doesn’t benefit anyone.
I have been impressed by a number of LNG companies that have made it clear their approach is to work with the public, have a full airing of the issues, and determine if the local community will accept a project. If not, they move on to another site. They understand that picking a fight they’ll have to live with for years to come is not an intelligent or efficient way to do business.
Fortnightly: What role should electric and gas utilities take in addressing the challenges of national energy security and climate change?