Docket No. RM01-12

The defining moment came late in the morning, Wednesday, Dec. 19, at the last meeting of the year for the Federal Energy Regulatory Commission.

That's when the TV cameraman spied former FERC chair Betsy Moler sitting in the audience, and trained his lens on her. As she looked up, she saw her image staring back from the flat-screen monitors scattered about the hearing room. But her shoulders were slumping. The cameraman could not know that the commissioners up at the head table had just stabbed her in the heart.

By a vote of 3-1, the FERC had crowned the Midwest Independent System Operator-MISO-as belle of the ball. In so doing, it scorned the proposed Alliance Regional Transmission Organization-the group to which Moler had devoted so many hours, filing briefs and business plans. So MISO would become the Midwest RTO. For Alliance, there was nothing to do but to go home and soak in a bath of $100 million or more in lost startup costs.

When the meeting broke for lunch, I saw the MISO's leading lawyers, Sheila Hollis and partner Stephen Teichler, leave the room and walk down the hall through the crowd. They were shaking hands and accepting congratulations-like gladiators leaving the arena. Meanwhile, back in the hearing room, FERC senior staffer Kevin Kelly came over to speak quietly with Ms. Moler-perhaps to offer a condolence. He had worked with her back when she was at FERC.

Commissioner Linda Breathitt dissented. She complained how the commission only a year earlier had encouraged Alliance to go forward by issuing conditional approvals. William Massey, however, had voted with the majority. But as a FERC veteran who once served under Moler, he took pains to urge the audience not to blame him for the disaster-he had opposed Alliance from early on, he said.

(Spin doctors take note: Since the departure of former chairman Curt Hébert, both Breathitt and Massey have seen their fortunes turn, but in opposite directions. Massey, who sparred endlessly with Hébert, now works under Wood-an activist chairman more attuned to his views. Breathitt, who sided sometimes with Hébert and his laissez-faire stance, now finds herself a bit isolated on this new commission.)

All of this left it to chairman Pat Wood to put the thing in context. He reminded folks that he took no part in the prior Alliance decisions. No need for him to express remorse. Later, however, he seemed eager to paint himself as a sensitive guy-he said he had been up late at home the night before, changing a diaper, and had spotted a loose page from a draft FERC order, lying about the floor, behind the crib.

Don't be fooled. This new regulator may speak softly but he carries a big stick. Like a Texas Tornado, the new FERC Chairman is kickin' dirt and takin' names.

Let me remind you that I no longer lay claim to this column. I appear here only as a guest of Richard Stavros, my successor, who took the editor's reins back in October. But that's my gain, since it gives me more time to ponder the news.

That said, here's my "top ten" list of the hottest disputes to watch going forward at the FERC, in rough order of significance:

1. Transmission Market Design (). The big enchilada. FERC wants electrics to form a GISB-like structure, which puts paid to the unrealistic and overly hopeful political ambitions of the North American Electric Reliability Council.
2. Generation Interconnection (). Wood wants to make his mark here, as he has reversed FERC's old policy, by ordering generic rules instead of moving case by case.
3. Northeast RTO Mediation (). Much ado about nothing? Even if FERC acts, all it can likely do is create a board of directors, which then will have to do all the work.
4. Western Infrastructure (). Wood wants to woo western governors. He also wants Wall Street to see FERC as the champion of infrastructure-putting distance between his commission and the Enron theory of value.
5. Eastern Infrastructure (). Ditto. A big conference in Manhattan later this month.
6. Generation Adequacy (). The most intellectually challenging case. Regulators want reserves, but many economists see ICAP programs as theoretically pointless.
7. TRANSLink (). Breaks ground for transmission spinoffs. The only utility-sponsored transmission initiative that looks truly serious. A litmus test for transcos, with Alliance now gone.
8. Western Price Mitigation (). FERC must face the music when the price caps sunset on Sept. 30.
9. Wires Code of Conduct (). Not much to be gained here. Why seek more company-specific rules for transmission, if RTO's eventually will hold sway?
10. Accounting for Derivatives (). Mainly for "show"-to keep Congress and Wall Street off Wood's back.

When I last checked on Dec. 20, the FERC's notice of proposed rule making (NOPR) on transmission codes of conduct (#9, above) had attracted comments from 15 different energy industry players, totaling 137 pages. By contrast, the NOPR on a standard transmission market design (#1 above) had logged 125 comments, with over 2,700 pages of testimony. Everyone has a dog in that race. And yet Wood has promised to get the market design rule out before the summer. He'd better crack the whip.

That brings us to item #10, the NOPR on utility accounting and reporting on profit and loss in derivatives trading.

At the December hearing at FERC, most of us hacks back in the press room saw this effort as "cover my back." You see, Wood wants an answer if Congress should ask him what FERC is doing to prevent a future "Enron-style" collapse at a utility that trades deep in derivatives.

The proposal is not out yet as I write. However, judging from Wood's comments on Dec. 19, this NOPR appears insignificant. To comply with recent guidelines issued by the Financial Accounting Standards Board (FAS 115, 130, and 133), FERC proposes to amend its Uniform System of Accounts to require utilities to include in their annual accounting reports certain summaries of potential gain or loss on derivatives trading positions and off-balance-sheet financing.

But I ask you: what good is a mark-to-market report if utilities need file only once a year?

On questioning, the FERC's technical staff admitted that the NOPR was just "giving the utilities a place to put the numbers." Even Wood seemed a bit sheepish. He doubted that investors would want to look to FERC for this type of information, and instead suggested they look to the Securities and Exchange Commission.

"Is this agency moving from a consumer protection role," he asked, "to a role where counterparties can rely on FERC data?"