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 William Massey pointed out that while he had publicly expressed reservations about eliminating open access policies for LNG, the lack of objection to the changes helped sway him to vote in favor of the change.
Grid Policies: MISO Sizes Up
FERC substantially increased the size and scope of the Midwest ISO by approving a series of four orders that would allow service under a single tariff over the region encompassing MISO, the Southwest Power Pool, and the participants in TRANSLink and GridAmerica. The approvals authorize an increase in the size of MISO by 4 million customers and add 14,000 miles of transmission lines across five states.
FERC accomplished this in one order by conditionally accepting operating agreements allowing GridAmerica to operate as a for-profit, independent transmission company (ITC) and accepting a master agreement by Grid-America companies regarding transfer of transmission facilities to the ITC.
FERC also determined that National Grid is not a market participant and is sufficiently independent to serve as the managing member of GridAmerica. (The GridAmerica companies are Ameren Services Co. made up of Union Electric Co. and Central Illinois Public Service Co. as well as American Transmission Systems, which is a FirstEnergy subsidiary, and Northern Indiana Public Service Co.)
Massey wrote a separate concurrence to note his concern with "a drift in our policy regarding the appropriate role for an ITC functioning within an RTO." Massey noted that he welcomes the evolution of ITCs within the RTO framework, especially those not affiliated with merchant interests. But Massey is disturbed by the order's continuation of a direction that began in an order concerning TRANSLink, accepting an ITC framework that "sub-divides the integrated operation function and parses out bits of it to the GridAmerica ITC." Massey said the danger is that such action not only can create an operational seam within the market, but it can create a conflict of interest by allowing an owner of assets-generation, transmission, or demand resources-to make decisions that will affect the economic interests of both it and competing asset owners.
Massey believes the appropriate role for the ITC within the RTO is best represented by the gridco model-a stand-alone, profit-driven firm that owns and maintains transmission facilities and operates them strictly at the direction of the RTO. It maintains the grid facilities, driven either by performance-based rate incentives or by the award of congestion revenue rights made possible by capacity freed up by superior maintenance practices, Massey explained. Now he wants FERC to at a minimum require that all operational authority reside entirely with the RTO when the standard market design (SMD) markets are instituted.
But Commissioner Nora Mead Brownell said it was "too early to preclude any business model." Docket Nos. ER02-2233-001 and EC03-14-000, Dec. 19, 2002 (FERC). FERC addressed consolidation of MISO and the Southwest Power Pool (SPP), conditionally accepting the companies' agreement and tariff and setting them for hearing. But the hearing was ordered held in abeyance pending establishment of settlement procedures. Docket Nos. ER02-1420-003 et al., Dec. 19, 2002 (FERC).
RTO Status: PJM Joins the Club
Much to the relief of Commissioner Brownell, a former Pennsylvania state commissioner, FERC on Dec. 19 certified the PJM Interconnection LLC as an RTO. It marked the second RTO approval by FERC. "We've been dancing around seams issues since I was a state commissioner," Brownell noted. But she has an ally in Chairman Wood, who said a "joint integrated market between MISO and PJM will be one of our top agenda items in 2003."
But FERC said that its concerns regarding seams problems among PJM, New York, and New England have been reduced because:
- FERC approved filing of a new SMD for ISO New England (ISO-NE), which will enable ISO-NE to use PJM's software and will track PJM's market rules;
ISO-NE has stated that one of the purposes of the filing was to reduce seams problems with New York as well.
Although FERC believes that more coordination with New York is needed, it is encouraged by a new standards organization, the Wholesale Electric Quadrant of the North American Energy Standards Board (WEQ), which aims to develop business practice standards and communication protocols that will apply across markets. Docket Nos. RT01-2-001 and RT01-2-002, Dec. 19, 2002 (FERC).
FERC granted rehearing in part of its Sept. 18 order providing guidance on the proposal to form RTO West. FERC accepted part of the proposed RTO West transmission operating agreement (TOA) but continued to reject section 25.18, which provides that the TOA terms always will govern in event of a conflict between the TOA and terms of the RTO West tariff.
Massey dissented in part over the provision in the RTO West order that says FERC will not revisit its prior market design approval upon issuance of the SMD final rule. Docket No. RT01-35-009, Dec. 20, 2002 (FERC).
In a separate order, FERC again reviewed whether the proposal to form the WestConnect RTO LLC filed by Arizona Public Service, El Paso Electric, Public Service Co. of New Mexico and Tucson Electric Power could satisfy FERC's RTO requirements.
California Refund Liability
"Hell yes," responded FERC Chairman Pat Wood when asked if he would like the ongoing El Paso Electric case settled. Wood said he found the oral arguments "helpful" and that he would "leave it at that." FERC staff is investigating possible misconduct by El Paso and subsidiaries of Enron Corp. El Paso announced Dec. 5 that it had reached a settlement with FERC staff, whereby the company would refund $14 million in revenue made on wholesale power transactions and would refrain from making sales pursuant to its market-based rate authority between Dec. 1, 2002, and Dec. 31, 2004. However, the settlement, if approved, would not be binding on other parties to the case, including California and other market participants.
On Dec. 26, Wood determined that the California parties (i.e., Caifornia PUC, the state attorney general, California Electricity Oversight Board, PG&E, and Southern California Edison) had shown "extraordinary circumstances" in their appeal, requiring the full commission to review the Dec. 12, 2002 California refund liability case by ALJ Birchman. That case found that refunds of electricity to the state from October 2000 to June 2001 total about $1.8 billion. Loretta Lynch, then-president of the California PUC, called that amount "a slap on the wrist to the energy companies."
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