Speaking on June 11 in Washington, D.C., at a symposium sponsored by the Institute of Electrical and Electronics Engineers, Rep. dan Schaefer (R-Colo.) was heard to say that he would have his electric restructuring bill out of committee by the end of July. He said his bill would mandate electric competition by 2000--just the sort of deadline that Texas Public Utility Commission Chair Robert Gee likes to call a "Hong Kong" clause.
Will the millennium bring the dawn of customer choice? Here we are, halfway through 1997. Hong Kong is now Chinese, but in America we are still ratepayers. Maybe what Schaefer really meant was that Congress might possibly get around to passing a bill by 2000.
Still Serving Drinks?
On and off for the last six months, we have been covering the issue of electric system reliability. Specifically, we've been tracking the efforts by the North American Electric Reliability Council to reinvent itself by imposing mandatory compliance with NERC rules and policies in place of the old collegial atmosphere, which relied on a close-knit cadre of hard-working utility engineers and a dash of peer pressure to stir the pot.
Simply put, if NERC ensures reliability, who watches over NERC?
At the IEEE meeting, I stumbled upon a wonderful presentation by a group of three experts who all had something to say. The group included Kevin Kelly, deputy director of the Federal Energy Regulatory Commission's Office of Electric Power Regulation; David Meyer, electricity team leader at the Office of Policy and International Affairs of the U.S. Department of Energy, and Ray Maliszewski, chair of NERC's engineering committee (also senior v.p. of systems planning for American Electric Power, and primary author of the technical report on the West Coast electric outages of last summer).
Kelly: "Who should set reliability rules? Who should enforce those rules?
"NERC has acknowledged a need for review ... for a government backstop. However, it's unclear what the FERC can do to enforce reliability. Our authority is unclear. It's not explicit."
Maliszewski: "This morning we heard Congressman Dan Schaefer say that NERC is a private organization ... and ... at NERC we want to remain a self-regulated, industry organization."
Kelly: "In most private organizations, a failure to obey rules offers grounds for expulsion. But that doesn't work with NERC, because you want everyone who is involved in the [electricity] market to be a member of NERC."
Maliszewski: "NERC has attempted to design some penalties regarding control-area performance. NERC has implied that it will bar any party [that violates NERC rules] from selling ancillary services. But how will NERC be able to enforce that penalty?"
Kelly: "At the FERC, on an informal basis, we have received requests and concerns from power marketers and transmission-dependent utilities to interpret whether a NERC rule or policy represents a 'tariff, term or condition' of transmission service and, if so, whether we can review that rule or policy under our statutory authority to regulate transmission.
"We haven't said that, but the issue is before us.
"For instance, the pro forma tariffs in Order 888 say that any unloading of lines in case of system emergency must not be discriminatory. But NERC could impose its own rules on whose line is unloaded first. A conflict could arise here."
Maliszewski: "At NERC, we have asked the FERC and DOE for guidance here. But I wonder, if you're a passenger on an airline, should the flight attendant worry about still serving drinks to everyone who's ordered a cocktail, even as the plane is going down?"
Meyer: "Speaking for myself, and not for the DOE, I feel we can be sure that there will be a reliability title in the federal legislation.
"We've crossed a threshold here. I can't conceive of the Congress laboring over a bill without giving attention to reliability. But that doesn't mean that it will be different than what we have already."
If that conversation doesn't make any sense, consider what I learned when I posed a similar question to FERC Chair Elizabeth Moler back in January at a hotel luncheon. Would the FERC take any action if the NERC were to adopt a reliability standard that would appear to violate the open-access goals of Order 888, or discriminate in some way, such as against transmission-dependent electric utilities? At the time, she politely dodged the question. She noted only the authority to review NERC's activities lay in the first instance with the Department of Energy.
But knowing I was a magazine editor, and knowing that her comments would probably end up in print, Moler added a caveat, leaving the door open for at least some involvement at the FERC.
"Our lawyers are very clever," said Moler, with a gleam in her eye.
Sleeping Well at Night
That it should prove easier for China to repatriate a century-old colony that for America to dismantle a century-old monopoly and still keep the lights on should come as no surprise. Despite the logic inherent in forcing electric utilities to unbundle generation from transmission and distribution, the regulators still haven't figured out how to make it work.
Deregulating generation appears relatively easy. But short of duplicating facilities (which nobody wants) and abandoning rate regulation (which nobody wants) and abandoning rate regulation (which nobody seems to believe is possible), how can regulators extract the kind of efficiencies and savings from T&D to make unbundling worthwhile when customer choice arrives at century's end?
In the natural gas industry, where the FERC claims great savings by having forced the pipelines to unbundle commodity sales from transportation, some fear that the savings have reached a dead end, even before we've had the chance to introduce choice at the burnertip.
Thomas Schneider, Ph.D., executive scientist in strategic research and development at the Electric Power Research Institute, feels that much of the cost savings in gas prices can be attributed not to regulatory unbundling, but from new gas production techniques, including directional drilling and better seismic surveys. His conclusion? The FERC's regulatory initiatives (contract reform, allocating take-or-pay costs, etc.) simply cleared the decks to allow those savings to reach the market.
Similarly, Richard Tabors, Ph.D., the electric consultant known for his expertise in zonal pricing for electric transmission, point out the problem:
"Transmission engineers sleep well at night. That should indicate the transmission has a lot more capacity in it than we now use. We haven't pushed it to the margins."
But how exactly to "push" T&D to the limit? Regulators expect that the wires business will somehow become more efficient even while continuing with cost-of-service regulation.
Notes Pravin Varaiya, Ph.D., professor of electrical engineering and computer sciences at the University of California at Berkeley: "The current regime is very reliable, but that reliability has been achieved through redundancy, not innovation."
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