Fortnightly Magazine - June 1 2000


Scare Tactics

The Wall Street Journal is goading Congress to act . And it might just work, if the warnings come to pass.

On May 8 ISO New England predicted it would have enough electricity to meet peak demand this summer. But how much demand are you gonna see at $6,000 per megawatt-hour, which was the ISO's prevailing price that day from 2 p.m. to 6 p.m?

That's $6 per kilowatt-hour - or about 50 times as high as the total packaged rate that you would expect to pay to your neighborhood monopoly utility. And delivery is extra.

Three days later, the Wall Street Journal reporter Rebecca Smith fanned the flames with her "Gloom and Doom" piece about Oracle building its own power plant "bunker" as insurance against outages. With quotes from Energy Secretary Bill Richardson predicting summer brownouts on the nation's "third-world grid," a thinking person might guess that the administration had engaged the Journal in the battle to sway Congress to pass comprehensive legislation this year on electricity restructuring.

But that's what it will take to get Congress to act - a good scare. Or better yet, a panic. The current system for maintaining electric reliability was born of the great Northeast Blackout of 1966. We probably need another cataclysm of like proportions to put the electric reliability wars into proper focus.

IT'S A WAR, ALL RIGHT. IT'S NERC VS. THE ISOs . At stake is whether the independent system operators now evolving in California, New England, New York, Texas, the Mid-Atlantic, and the Midwest will supplant the regional reliability groups set up by the North American Electric Reliability Council.

And hovering above the fray is the Federal Energy Regulatory Commission, which stands to win regardless of the outcome: either as the nominal oversight board for the new NERC or the father of a revamped system of private regional transmission organizations. Unless, of course, we have massive outages this summer, and Congress comes to blame the FERC, for interfering with NERC's mission by setting up this new system of fledgling RTOs, and NERC can position itself as the spurned and untarnished suitor.

In fact, NERC's image may now be on the rebound - largely because it has faded so far into the background during the last year. Meanwhile, it appeared during the last two months that just about every major ISO - whether operating or still planned - was foundering in disarray or at least locked in a major controversy.

The California ISO has announced a plan to revamp its scheme for pricing transmission access (to make it more uniform and logical) but so far has encountered protests from just about every category of participant, including both public power and representatives from the investor-owned utilities. The ISO is trying to be all things to all people, and is floundering in the process.

In New York, the ISO faced allegations of price manipulation in its 10-minute-ahead reserve market, and found the preliminary evidence so damning that it decided on its own to ask the FERC to suspend market pricing without