FERC

The high stakes turf battle over whether FERC or the federal bankruptcy courts have jurisdiction over rejecting wholesale power contracts is now in its third round. Round one was fought in 2003 in the NRG bankruptcy case and ended in a settlement among the parties. Round two followed with the Mirant Chapter 11 case. Now punches and counterpunches are flying in round three: the Calpine bankruptcy.

Major transmission projects based on two distinct models are showing signs of life. What can these projects teach us about future transmission investment?

In its March 2005 report to the House Energy and Commerce Committee, the Federal Energy Regulatory Commission (FERC) repeated its request for enhanced civil penalty authority. When Congress passed the Energy Policy Act of 2005 (EPACT), it granted FERC all the authority that it had requested, and more. The new director of FERC’s Office of Market Oversight and Investigations (OMOI) called the new penalty authority “awesome.”¹

The Baltimore Sun recently carried a very poignant letter from one of its local readers— a letter that utility executives might well take to heart. Appearing under the title, “Energy Advice Cruel to Poorer Readers,” the letter took offense at an article that trivialized the effect of the huge increase in local electric bills (35 to 72 percent) expected this July with the lifting of a long-standing retail rate freeze.

Hidden in the 1,700-plus pages of the Energy Policy Act of 2005 is a set of regulatory requirements that will redefine the technology, leadership, training, culture, compensation, job design, and organizational models currently employed in the industry.

FERC proposed a new set of regulations, under the new section 219 of the Federal Power Act, explaining in broad outline how it might approve generous financial incentives for new investments in transmission—incentives once dubbed as “candy.” As of mid-January, the new NOPR had spawned more industry comment than just about any other FERC proposal in recent memory.

Power-industry restructuring redistributed financial uncertainties that discourage generation investment and ultimately raise the price of electricity to consumers.

Gas composition issues have become a significant hurdle for the industry. Resolving these challenges will not be easy, requiring all stakeholders to apply a thoughtful approach to understanding the issues.

With the possible exception of keeping the lights on, the merger game dwarfs just about every other question facing today’s electric utilities. The last big wave of consolidation hit in the late 1990s. Now the forecast calls for a repeat performance, but don’t bet the farm. There’s a hitch, you see. It’s today’s high commodity costs.

To create the strong electric reliability system envisioned by Congress, FERC needs to focus on many issues, two of which are especially important: creating consistency in how compliance and enforcement programs are carried out at the regional level, and leading the transition—effectively and promptly—from today’s world to the new era called for in EPACT.